Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.

Yes
o

No x

Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.

Yes
o

No x

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

Yes
x

No o

Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).

Yes
o

No o (Not
Applicable)

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “small
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated
filer x

Accelerated filer
¨

Non-accelerated
filer ¨

Smaller reporting
company ¨

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No x

As of the
last business day of the registrant’s most recently completed second fiscal
quarter, the approximate aggregate market value of the common stock held by
non-affiliates, based upon the closing price of the common stock as quoted by
the NASDAQ Global Select Market was $695,301,411. Shares of common stock held by
executive officers, directors and holders of more than 5% of the outstanding
common stock have been excluded. This determination of affiliate status is not
necessarily a conclusive determination for other
purposes.

As of
February 16, 2010, the registrant had 45,176,381 shares of common stock
outstanding.

DOCUMENTS
INCORPORATED BY REFERENCE:

Portions
of the definitive Proxy Statement to be delivered to shareholders in connection
with the Annual Meeting of Shareholders to be held May 6, 2010 are incorporated
by reference into Part III of this Form 10-K.

This
Annual Report on Form 10-K includes 73 pages with the Index to Exhibits located
on page 65.

j2 Global
Communications, Inc. (“j2 Global”, “our”, “us” or “we”) is a Delaware
corporation founded in 1995. By leveraging the power of the Internet, we provide
outsourced, value-added messaging and communications services to individuals and
businesses throughout the world. We offer fax, voicemail, email and call
handling services and bundled suites of certain of these services. We market our
services principally under the brand names eFax®,
eFax Corporate®,
Onebox®,
eVoice® and
Electric Mail®.

We
deliver many of our services through our global telephony/Internet Protocol
(“IP”) network, which spans more than 3,500 cities in 46 countries across six
continents. We have created this network, and continuously seek to expand it,
through negotiation with U.S. and foreign telecommunications and co-location
providers for telephone numbers (also referred to as Direct Inward Dial numbers
or “DIDs”), Internet bandwidth and co-location space for our equipment. We
maintain and seek to grow an inventory of telephone numbers to be assigned to
new customers. Most of these numbers are “local” (as opposed to toll-free),
which enables us to provide our paying subscribers telephone numbers with a
geographic identity. In addition to growing our business internally, we have
used acquisitions to grow our customer base, enhance our technology and acquire
skilled personnel.

Our core
services include fax, voicemail, email and call handling, as well as bundled
suites of certain of these services. These are business services that make our
customers more efficient, more mobile, more cost-effective and more secure than
traditional alternatives. We generate substantially all of our revenue from
subscribers that pay, subscription and usage fees. Subscription fees are
referred to as “fixed” revenues, while usage fees are referred to as “variable”
revenues. We also generate revenues from patent licensing and sales, advertising
and revenue share from our customers’ use of premium rate telephone numbers. Of
the 11.2 million telephone numbers deployed as of December 31, 2009,
approximately 1.3 million were serving paying subscribers, with the balance
deployed to free subscribers, including those with premium rate telephone
numbers. We operate in one reportable segment: value-added messaging and
communications services, which provides for the delivery of fax, voice and email
messages and communications via the telephone and/or Internet
networks.

During
the past three years, we have derived a substantial portion of our revenues from
our DID-based services, including eFax, Onebox, and eVoice. As a result, we
believe that paying DIDs and the revenues associated therewith are an important
metric for understanding our business. It has been and continues to be our
objective to increase the number of paying DIDs through a variety of
distribution channels and marketing arrangements and by enhancing our brand
awareness. In addition, we seek to increase revenues through a combination of
stimulating use by our customers of usage-based services and introducing new
services.

We market
our services to a broad spectrum of prospective customers including individuals,
small to medium-sized businesses and large enterprises and government
organizations. Our marketing efforts include enhancing brand awareness;
utilizing online advertising through Internet portals, Internet service
providers (“ISPs”), search engines and affiliate programs; and selling through
both a telesales and direct sales force. Currently, we have seven primary
methods by which we acquire paying subscribers: (i) selling direct through our
Websites, targeting primarily individuals; (ii) attracting direct paying
individual subscribers through various Internet portals, ISPs, search engines
and affiliate programs; (iii) promoting our solutions to small to mid-sized
businesses through our Websites targeting corporate, enterprise and governmental
customers; (iv) converting a portion of our free base of customers to a paid
solution; (v) selling our solutions to large enterprises and governmental
organizations through our direct sales force and tradeshows; (vi) attracting
international individual and business customers through our international
Websites and direct sales force; and (vii) offering additional services to our
existing customers. We continuously seek to extend the number of distribution
channels through which we acquire paying customers and improve the cost and
volume of customers obtained through our current channels.

In
addition to growing our business organically, we have used acquisitions to grow
our customer base, enhance our technology and acquire skilled personnel. During
2009, we completed the acquisition of the digital faxing business and certain
intellectual property of CallWave, Inc., a provider of Internet unified
communications solutions, and the email business of Quexion, LLC. During 2008,
we completed four acquisitions: (a) fax assets of Mediaburst Limited, a UK-based
provider of messaging services, (b) all of the outstanding shares of Phone
People Holdings Corporation, a U.S.-based provider of voice messaging services,
(c) assets of Mailwise, LLP, a U.S.-based provider of email services, and (d)
assets of Mijanda, Inc., a U.S.-based provider of fax and voice services. During
2007, we completed two acquisitions: (a) assets of YAC Limited, a provider of
messaging services primarily in the United Kingdom, and (b) the RapidFAX digital
fax business of Easylink Services International Corporation.

Through a
combination of internal technology development and acquisitions, we have built a
patent portfolio consisting of multiple U.S. and foreign patents and numerous
pending U.S. and foreign patent applications. We generate licensing revenues
from some of these patents. We intend to continue to invest in patents, to
aggressively protect our patent assets from unauthorized use and to continue to
generate patent licensing revenues from authorized users. For more information
on our patents and other intellectual property, please refer to the section
entitled Patents and Proprietary Rights contained in Item 1 of this Annual
Report on Form 10-K.

- 3
-

Our
Solutions

We
believe businesses and individuals are increasingly outsourcing their
communication and messaging needs. Their goal is to reduce or eliminate costs
while also enhancing the security of transmissions and user efficiency. Our core
eFax solution enables
users to receive faxes into their email inboxes. Our core eVoice and Onebox solutions provide
customers a virtual receptionist with various available enhancements. These
services represent more efficient and less expensive solutions than many
existing alternatives, and provide for increased security, privacy and message
handling flexibility (e.g., the ability to store messages electronically and
forward them by simply forwarding an email).

We
currently offer integrated solutions designed to replace or augment individual
and corporate messaging and communication services. We tailor our solutions to
satisfy the differing needs of our customers. Our paid services allow a
subscriber to select a local telephone number from among more than 3,500 cities
around the world. Toll-free U.S. and Canadian telephone numbers are also
available, as are premium rate numbers in various countries in Western Europe.
In addition, our services enhance the ability of businesses to provide messaging
services to their remote workforces, increase their level of information
security and control and allocate costs more effectively.

We offer
the following services and solutions:

Fax

eFax offers desktop faxing
services. Various tiers of service provide increasing levels of features and
functionality. Our eFaxPlus® and
eFax ProTM
services allow a subscriber to choose either a toll-free telephone number that
covers both the U.S. and Canada or a local telephone number from among more than
3,500 cities worldwide. This service level enables subscribers to receive
inbound fax messages in their email inboxes, access these messages via a
full-featured Web-based email interface and send digital documents to any fax
number in the world directly from their desktops. This service offering is also
localized in many international currencies and the following languages,
including Chinese (Cantonese), Dutch, French, German, Italian, Polish,
Portuguese and Spanish, among others.

eFax Corporate offers
capabilities similar to those offered by eFax Plus and eFax Pro, but with added
features and tools geared towards enterprises and their users. For example, we
provide our corporate customers a Web browser-based account administration
interface, which enables them to provision telephone numbers to employees, as
needed, without contacting our account representatives. eFax Corporate also offers
the option of enhanced security features, which are particularly attractive to
law firms and companies in regulated industries such as banking, brokerage and
healthcare.

eFax DeveloperTM
offers high-volume, production fax solutions. Designed for quick and simple
integration with application environments, eFax Developer provides
inbound and outbound fax services through a secure XML interface. Enhanced
features such as bar-code recognition, dynamic retries and high speed
transmission are included and accessible 24/7/365. Robust fax capabilities can
easily be implemented through simple software development kits or through a
universal web post solution. eFax Developer provides the
scaling power of an outside fax service with the flexibility of an internal
server without requiring additional equipment, supplies or
expertise.

eFax BroadcastTM and
jBlast® offer
cost-effective solutions for high-volume outbound faxing. These services enable
users to send important documents simultaneously to hundreds or thousands of
recipients anywhere in the world. Customers do not need special computer
equipment, expensive fax boards or multiple phone lines. These services also
enable customers to accurately monitor the status of their faxes and update
their database of “Do Not Fax” names and undeliverable fax numbers.

We have
alternative desktop faxing solutions that are offered under a variety of brands
and pricing plans geared primarily toward the individual or small business
user. We also offer limited versions of certain services on a free
basis.

Voice

eVoice ReceptionistTM and
Onebox
ReceptionistTMare virtual PBX
solutions that provide small and medium-sized businesses on-demand voice
communications services, featuring a toll-free or local company telephone
number, a professionally-produced auto-attendant and menu tree. With these
services, a subscriber can assign departmental and individual extensions that
can connect to multiple U.S. or Canadian telephone numbers, including
traditional land-line telephones as well as mobile and IP networks, and can
enhance reachability through “find me/follow me” capabilities. These services
also include advanced integrated voicemail for each extension, effectively
unifying mobile, office and other separate voicemail services and improving
efficiency by delivering voicemails in both native audio format and as
transcribed text.

- 4
-

Onebox®is a full-featured
suite of unified communications services, including email, voicemail, fax and
“find me/follow me” capabilities. Onebox Unified Messaging
provides the subscriber a unique toll-free or local number and enables him or
her to receive voicemail messages or faxes via email or access them by
telephone; to send, receive or reply to faxes or voicemail messages online or by
telephone; and to store faxes and email messages online.

Email

Electric Mail® is an
outsourced hosted email service that we offer to businesses. Electric Mail develops and
delivers email and related solutions that are hosted offsite and seamlessly
integrate into a customer’s existing email system. The services include Electric WebMailTM, E-mmunityTM
virus scanning, SpamSMARTTM SPAM
filtering, and VaultSMARTTM
/PolicySMARTTM
archiving which delivers a secure, scalable email archiving and customizable
compliance tools to correspond with a company’s retention policy.

Global
Network and Operations

We have
multiple physical Points of Presence (“POPs”) worldwide, a central data center
in Los Angeles and a remote disaster recovery facility. We connect our POPs to
our central data centers via redundant, and often times diverse, Virtual Private
Networks (“VPNs”) using the Internet. Our network is designed to deliver
value-added user applications, customer support, billing and a local presence
for our customers from among more than 3,500 cities in 46 countries on six
continents. Our network covers all major metropolitan areas in the U.S., U.K.
and Canada, and such other major cities as Berlin, Hong Kong, Madrid, Manila,
Mexico City, Milan, Paris, Rome, Singapore, Sydney, Taipei, Tokyo and Zurich.
For financial information about geographic areas, see Note 14 of the Notes to
Consolidated Financial Statements included elsewhere in this Annual Report on
Form 10-K.

We obtain
telephone numbers from various local carriers throughout the U.S. and
internationally. Our ability to continue to acquire additional telephone
numbers in desired locations in the future will depend on our relationships with
our local carriers, our ability to pay market prices for such telephone numbers,
our ability to secure telephone numbers from among growing number of alternate
providers and the regulatory environment. Please refer to the sections entitled
Government Regulation and Risk Factors contained in Item 1 and 1A, respectively,
of this Annual Report on Form 10-K.

Customer
Support Services

Our
Customer Service organization provides support to our customers through a
combination of online self-help, email messages, interactive chat sessions and
telephone calls. Our Internet-based online self-help tools enable customers to
resolve simple issues on their own, eliminating the need to speak or write to
our customer service representatives. We use internal personnel and contracted
third parties (on a dedicated personnel basis) to answer our customer emails and
telephone calls and to participate in interactive chat sessions.

We
provide email support seven days per week, 24 hours per day to all subscribers.
Paying subscribers have access to live-operator telephone support seven days per
week, 24 hours per day. Dedicated telephone support is provided for Corporate
customers 24 hours per day, seven days per week.

Our most
popular solutions relate to faxing, including the ability to deliver faxes to
our customers via email and our outbound desktop faxing capabilities. These
solutions compete primarily against traditional fax machine manufacturers, which
are generally large and well established companies, providers of fax servers and
related software, such as Open Text Corporation as well as publicly traded and
privately-held application service providers, such as Premiere Global Services,
Inc. and Easylink Services International Corporation. Some of these companies
may have greater financial and other resources than we do. For more information
regarding the competition that we face, please refer to the section entitled
Risk Factors contained in Item 1A of this Annual Report on Form
10-K.

- 5
-

Patents
and Proprietary Rights

We regard
the protection of our intellectual property rights as important to our success.
We aggressively protect these rights by relying on a combination of patents,
trademarks, copyrights, trade dress and trade secret laws and by using the
domain name dispute resolution system. We also enter into confidentiality and
invention assignment agreements with employees and contractors, and
nondisclosure agreements with parties with whom we conduct business in order to
limit access to and disclosure of our proprietary information.

We have a
portfolio of multiple U.S. and foreign patents and have numerous pending U.S.
and foreign patent applications, all covering components of our technology and
in some cases technologies beyond those that we currently offer. Three of our
core U.S. patents have been reaffirmed through reexamination proceedings with
the United States Patent and Trademark Office. We seek patents for inventions
that contribute to our business and technology strategy. We have obtained patent
licenses for certain technologies where such licenses are necessary or
advantageous. Unless and until patents are issued on the pending applications,
no patent rights on those applications can be enforced.

Over the
past five years we have generated royalties from licensing certain of our
patents and have enforced these patents against companies using our patented
technology without our permission. We have pending patent infringement lawsuits
against several companies. In each case, we are seeking at least a reasonable
royalty for the infringement of the patent(s) in suit, a permanent injunction
against continued infringement and attorneys’ fees, interest and
costs.

We own
and use a number of trademarks in connection with our products and services,
including eFax and the eFax logo, eFax Corporate and the eFax Corporate logo,
eVoice and the eVoice logo, Onebox and the Onebox logo and Electric Mail and the
Electric Mail logo, among others. Many of these trademarks are registered in the
U.S. and other countries, and numerous trademark applications are pending in the
U.S. and several non-U.S. jurisdictions. We hold numerous Internet domain names,
including “efax.com”, “jconnect.com”, “fax.com”, “j2.com”, “j2global.com”,
“onebox.com”, “electricmail.com”, “efaxcorporate.com” and “evoice.com”, among
others. We have in place an active program to continue securing “eFax” and other
domain names in non-U.S. jurisdictions. We have filed to protect our rights
to the “eFax” and other names in certain alternative top-level domains such as
“.org”, “.net“, “.biz”, “.info” and “.us”, among others.

Like
other technology-based businesses, we face the risk that we will be unable to
protect our intellectual property and other proprietary rights, and the risk
that we will be found to have infringed the proprietary rights of others. For
more information regarding these risks, please refer to the section entitled
Risk Factors contained in Item 1A of this Annual Report on Form
10-K.

Government
Regulation

We are
subject to a number of foreign and domestic laws and regulations that affect
companies conducting business related to the Internet and telecommunications,
including, among others, those addressing privacy, data protection, indecency,
obscenity, defamation, libel, pricing, taxation, telephone numbers, advertising,
intellectual property and technological convergence. We face risks from proposed
legislation or new interpretations of existing legislation that could occur in
the future, and as Internet services and telecommunications services converge or
the services we offer expand, we may face increased domestic or foreign
regulation in areas such as delivery of broadband services, inter-carrier
compensation and continued regulation of competition.

Some of
our service providers are subject to regulation by the U.S. Federal
Communications Commission (“FCC”), state public utility commissions and foreign
governmental authorities. However, as an Internet messaging services provider,
we generally are not subject to direct regulation by any governmental agency in
the U.S., other than regulations applicable to businesses generally. This is not
the case in some international locations.

Continued
regulation arising from telephone number administration may also make it more
difficult for us to obtain necessary numbering resources. For example, several
years ago the FCC conditionally granted requests by California and Connecticut
to adopt special area codes for unified messaging. Although neither State has
implemented such area codes, if they or other states do so our ability to
compete in those states could be adversely affected. Similar regulation has
occurred internationally (e.g., Germany prohibits issuing a local telephone
number to anyone without a physical presence in the area) and may continue to be
enacted in additional locations in the future. As a user of toll-free
numbers and an organization that requests such numbers from the national numbers
database, we are subject to the FCC's rules regarding warehousing,
hoarding, and porting of toll-free numbers. Failure to comply with
such rules could result in substantial fines and penalties.

In
addition, Congress and the FCC are reviewing legislation and regulations related
to the Universal Service Fund (“USF”), which subsidizes the U.S.
telecommunications system. Congress and the FCC are considering altering the
formula by which entities contribute to the USF. If adopted, one proposal to
implement a flat-fee per phone number methodology could alter or eliminate the
provision of our non-paid (free advertising-supported) services and could cause
us to raise the price of our paid services. Other changes to the USF may also
increase our costs and impact our operations.

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-

The FCC
is authorized to take enforcement action against companies that send so-called
“junk faxes” and has held numerous fax broadcasters liable for violating the
Telephone Consumer Protection Act of 1991 (“TCPA”), the Junk Fax Prevention Act
of 2005 (“Junk Fax Act”) and related FCC rules. Entities that merely transmit
facsimile messages on behalf of others may face FCC inquiry and enforcement,
civil litigation or private causes of action if they have a high degree of
involvement in transmitting junk faxes or have actual notice of illegal junk fax
transmissions and failed to take steps to prevent such transmissions. We take
significant steps to ensure that our services are not used to transmit
unsolicited faxes on a large scale and we do not believe that we have a high
degree of involvement or notice of the use of our service to broadcast junk
faxes. We are currently involved in litigation involving alleged violations of
the TCPA with Protus IP Solutions, Inc. For more information about this lawsuit,
see Item 3 of this Annual Report on Form 10-K entitled Legal
Proceedings.

We are
subject to a range of federal, state and foreign laws regarding privacy,
protection of user data, data breaches, and retention of certain data elements.
Any failure on our part to comply with these laws may subject us to significant
liabilities. Complying with these varying requirements could cause us to incur
additional costs and change our business practices. We also face risks due to
potential Internet neutrality laws and regulations as to the services and sites
that users can access through their broadband service providers.

Future
developments in laws that govern online activities might inhibit the growth of
the Internet, impose taxes, mandate costly technical requirements, create
uncertainty in the market or otherwise have an adverse effect on the Internet.
These developments could, in turn, have a material adverse effect on our
business, prospects, financial condition and results of operations.

Seasonality
and Backlog

Our
subscriber revenues are impacted by the number of effective business days in a
given period. We experience no material backlog in sales orders or the
provisioning of customer orders. We traditionally experience lower than average
usage and customer sign-ups in the fourth quarter.

Research
and Development

The
markets for our services are evolving rapidly, requiring ongoing expenditures
for research and development and timely introduction of new services and service
enhancements. Our future success will depend, in part, on our ability to enhance
our current services, to respond effectively to technological changes, to sell
additional services to our existing customer base and to introduce new services
and technologies that address the increasingly sophisticated needs of our
customers.

We devote
significant resources to develop new services and service enhancements. Our
research, development and engineering expenditures were $11.7 million, $12.0
million and $11.8 million for the fiscal years ended December 31, 2009, 2008 and
2007, respectively. For more information regarding the technological risks that
we face, please refer to the section entitled Risk Factors contained in Item 1A
of this Annual Report on Form 10-K.

Employees

As of
December 31, 2009, we had approximately 400 employees, the majority of whom are
in the U.S.

Our
future success will depend, in part, on our ability to continue to attract,
retain and motivate highly qualified technical, marketing and management
personnel. Our employees are not represented by any collective bargaining unit
or agreement. We have never experienced a work stoppage. We believe our
relationship with our employees is good.

Web
Availability of Reports

Our
corporate information Website is www.j2global.com. The information on our
Website is not part of this Annual Report on Form 10-K. However, on the Investor
Relations portion of this Website the public can access free of charge our
annual, quarterly and current reports, changes in the stock ownership of our
directors and executive officers and other documents filed with the Securities
and Exchange Commission (“SEC”) as soon as reasonably practicable after the
filing dates. Further, the SEC maintains an Internet site that contains reports,
proxy and information statements and other information regarding our filings at
www.sec.gov.

- 7
-

Item
1A. Risk Factors

Before
deciding to invest in j2 Global or to maintain or increase your investment, you
should carefully consider the risks described below in addition to the other
cautionary statements and risks described elsewhere in this Annual Report on
Form 10-K and our other filings with the SEC, including our subsequent reports
on Forms 10-Q and 8-K. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial also may affect our business. If any of
these known or unknown risks or uncertainties actually occurs, our business,
prospects, financial condition, operating results and cash flows could be
materially adversely affected. In that event, the market price of our common
stock will likely decline and you may lose part or all of your
investment.

Risks
Related To Our Business

Weakness
in the financial markets and in the economy as a whole has adversely affected
and may continue to adversely affect segments of our customers, which has
resulted and may continue to result in decreased usage levels, customer
acquisitions and customer retention rates and, in turn, could lead to a decrease
in our revenues or rate of revenue growth.

Certain
segments of our customers - those whose business activity is tied to the health
of the credit markets and the broader economy, such as banks, brokerage firms
and those in the real estate industry - have been and may continue to be
adversely affected by the current weakness in the credit markets and in the
broader mortgage market and the general economy. To the extent our customers’
businesses have been adversely affected by these economic factors and their
usage levels of our services decline, we experienced and may continue to
experience a decrease in our average usage per subscriber and, therefore, a
decrease in our average variable revenue per subscriber. In addition,
continued weakness in the economy has adversely affected and may continue to
adversely affect our customer retention rates and the number of our new customer
acquisitions. These factors have adversely impacted, and may continue to
adversely impact, our revenues and profitability.

Increased
numbers of credit and debit card declines as a result of decreased availability
of credit and/or a weak economy which continues to experience heightened levels
of unemployment could lead to a decrease in our revenues or rate of revenue
growth.

A
significant number of our paid subscribers pay for their services through credit
and debit cards. Weakness in certain segments of the credit markets and in
the U.S. and global economies, which continue to experience heightened levels of
unemployment, has resulted in and may continue to result in increased numbers of
rejected credit and debit card payments. We believe this has resulted in and may
continue to result in increased customer cancellations and decreased customer
signups. This also has required and may continue to require us to increase
our reserves for doubtful accounts and write-offs of accounts
receivables. The foregoing may adversely impact our revenues and
profitability.

We are a
U.S.-based multinational company subject to tax in multiple U.S. and foreign tax
jurisdictions. Our provision for income taxes is based on a jurisdictional mix
of earnings, statutory rates and enacted tax rules, including transfer pricing.
Significant judgment is required in determining our provision for income taxes
and in evaluating our tax positions on a worldwide basis. It is possible that
these positions may be challenged or we may find tax-beneficial intercompany
transactions to be uneconomical, either of which may have a significant impact
on our effective tax rate.

A number
of factors affect our income tax rate and the combined effect of these factors
could result in an increase in our effective income tax rate. An increase in
future effective income tax rates would adversely affect net income in future
periods. We operate in different countries that have different income tax rates.
Effective tax rates could be adversely affected by earnings being lower than
anticipated in countries having lower statutory rates and higher than
anticipated in countries having higher statutory rates, by changes in the
valuation of deferred tax assets or liabilities or by changes in tax laws or
interpretations thereof.

A
substantial portion of our cash and investments are invested outside of the U.S.
We may be subject to incremental taxes upon repatriation of such funds to the
U.S.

We may be
subject to examination of our tax returns by the U.S. Internal Revenue Service
and other domestic and foreign tax authorities. We are currently under audit by
the Internal Revenue Service for tax years 2004 through 2008. In addition, we
are under audit by the California Franchise Tax Board for tax years 2005 through
2007 and by the Illinois Department of Revenue for 2005 and 2006. We are also
under audit by various other states for non-income related taxes. We
regularly assess the likelihood of adverse outcomes resulting from these
examinations to determine the adequacy of our income and other tax-related
reserves and expense. If our reserves are not sufficient to cover these
contingencies, such inadequacy could materially adversely affect our business,
prospects, financial condition, operating results and cash flows.

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-

Our
growth will depend on our ability to develop our brands and market new brands,
and these efforts may be costly.

We
believe that continuing to strengthen our current brands and effectively launch
new brands will be critical to achieving widespread acceptance of our services,
and will require continued focus on active marketing efforts. The demand for and
cost of online and traditional advertising have been increasing and may continue
to increase. Accordingly, we may need to spend increasing amounts of money on,
and devote greater resources to, advertising, marketing and other efforts to
create and maintain brand loyalty among users. In addition, we are supporting an
increasing number of brands, each of which requires its own resources. Brand
promotion activities may not yield increased revenues, and even if they do, any
increased revenues may not offset the expenses incurred in building our brands.
If we fail to promote and maintain our brands, or if we incur substantial
expense in an unsuccessful attempt to promote and maintain our brands, our
business could be harmed.

If
our trademarks are not adequately protected or we are unable to protect our
domain names, our reputation and brand could be adversely affected.

Our
success depends, in part, on our ability to protect our trademarks. We rely on
some brands that use the letter “e” before a word, such as “eFax” and “eVoice”.
Some regulators and competitors have taken the view that the “e” is descriptive.
Others have claimed that these brands are generic when applied to the products
and services we offer. If we are unable to secure and protect trademark rights
to these or other brands, the value of these brands may be diminished,
competitors may be able to more effectively mimic our service and methods of
operations, the perception of our business and service to subscribers and
potential subscribers may become confused in the marketplace and our ability to
attract subscribers may be adversely affected.

We
currently hold various domain names relating to our brands, both in the U.S. and
internationally, including efax.com and various other international extensions,
evoice.com, fax.com, onebox.com and others. The acquisition and maintenance of
domain names generally are regulated by governmental agencies and their
designees. The regulation of domain names in the U.S. may change. Governing
bodies may establish additional top-level domains, appoint additional domain
name registrars or modify the requirements for holding domain names. As a
result, we may be unable to acquire or maintain relevant domain names in the
U.S. Furthermore, the relationship between regulations governing domain names
and laws protecting trademarks and similar proprietary rights in the U.S. is
unclear. Similarly, international rules governing the acquisition and
maintenance of domain names in foreign jurisdictions are sometimes different
from U.S. rules, and we may not be able to obtain all of our domains
internationally. As a result of these factors, we may be unable to prevent third
parties from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of our trademarks and other proprietary rights. In
addition, failure to protect our domain names domestically or internationally
could adversely affect our reputation and brands, and make it more difficult for
users to find our Websites and our services.

We
may be subject to risks from international operations.

As we
continue to expand our business operations in countries outside the U.S., our
future results could be materially adversely affected by a variety of
uncontrollable and changing factors including, among others, foreign currency
exchange rates; political or social unrest or economic instability in a specific
country or region; trade protection measures and other regulatory requirements
which may affect our ability to provide our services; difficulties in staffing
and managing international operations; and adverse tax consequences, including
imposition of withholding or other taxes on payments by subsidiaries and
affiliates. Any or all of these factors could have a material adverse impact on
our future business, prospects, financial condition, operating results and cash
flows.

We have
only limited experience in marketing and operating our services in certain
international markets. Moreover, we have in some cases experienced and expect to
continue to experience in some cases higher costs as a percentage of revenues in
connection with establishing and providing services in international markets
versus the U.S. In addition, certain international markets may be slower than
the U.S. in adopting the Internet and/or outsourced messaging and communications
solutions and so our operations in international markets may not develop at a
rate that supports our level of investments.

We
rely heavily on the revenue generated by our fax services.

Currently,
a substantial portion of the overall traffic on our network is fax related. Our
success is therefore dependent upon the continued use of fax as a messaging
medium and/or our ability to diversify our service offerings and derive more
revenue from other services, such as voice, email and unified messaging
solutions. If the demand for fax as a messaging medium decreases, and we are
unable to replace lost revenues from decreased usage of our fax services with a
proportional increase in our customer base or with revenues from our other
services, our business, financial condition, operating results and cash flows
could be materially and adversely affected.

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We
believe that one of the attractions to fax versus alternatives, such as email,
is that fax signatures are a generally accepted method of executing contracts.
There are on-going efforts by governmental and non-governmental entities, many
of which possess greater resources than we do, to create a universally accepted
method for electronically signing documents. Widespread adoption of so-called
“digital signatures” could reduce demand for our fax services and, as a result,
could have a material adverse effect on our business, prospects, financial
condition, operating results and cash flows.

If
we experience excessive fraudulent activity or cannot meet evolving credit card
company merchant standards, we could incur substantial costs and lose the right
to accept credit cards for payment and our subscriber base could decrease
significantly.

A
significant number of our paid subscribers authorize us to bill their credit
card accounts directly for all service fees charged by us. If people use our
services using stolen credit cards, we could incur substantial third party
vendor costs for which we may not be reimbursed. We also incur losses
from claims that the customer did not authorize the credit card transaction to
purchase our service. If the numbers of unauthorized credit card transactions
become excessive, we could be assessed substantial fines for excess chargebacks
and we could lose the right to accept credit cards for payment. In addition,
credit card companies may change the merchant standards required to utilize
their services from time to time. If we are unable to meet these new standards,
we could be unable to accept credit cards. Substantial losses due to fraud or
our inability to accept credit card payments, which could cause our paid
subscriber base to significantly decrease, could have a material adverse effect
on our business, prospects, financial condition, operating results and cash
flows.

Our
business and users may be subject to sales tax and other
taxes.

The
application of indirect taxes (such as sales and use tax, value added tax
(“VAT”), goods and services tax, business tax and gross receipt tax) to
e-commerce businesses such as j2 Global and our users is a complex and evolving
issue. Many of the fundamental statutes and regulations that impose these taxes
were established before the growth of the Internet and e-commerce. In many
cases, it is not clear how existing statutes apply to the Internet or
e-commerce. In addition, some jurisdictions have implemented laws specifically
addressing the Internet or some aspect of e-commerce and several other proposals
have been made at the U.S. federal, state and local level that would impose
additional taxes on the sale of goods and services through the Internet. These
proposals, if adopted, could substantially impair the growth of e-commerce,
hamper our ability to retain and attract new customers and diminish our ability
to derive financial benefit from our activities. In November 2007, the
U.S. federal government enacted legislation extending the moratorium on
states and other local authorities imposing access or discriminatory taxes on
the Internet through November 2014. This moratorium does not prohibit federal,
state or local authorities from collecting taxes on our income or from
collecting taxes that are due under existing tax rules. The application of
existing, new or future laws could have adverse effects on our business,
prospects and operating results. There have been, and will continue to be,
substantial ongoing costs associated with complying with the various indirect
tax requirements in the numerous markets in which we conduct or will conduct
business.

A
system failure or security breach could delay or interrupt service to our
customers, harm our reputation or subject us to significant
liability.

Our
operations are dependent on our ability to protect our network from interruption
by damage from fire, earthquake, power loss, telecommunications failure,
unauthorized entry, computer viruses or other events beyond our control. There
can be no assurance that our existing and planned precautions of backup systems,
regular data backups, security protocols and other procedures will be adequate
to prevent significant damage, system failure or data loss. Also, despite the
implementation of security measures, our infrastructure may be vulnerable to
computer viruses, hackers or similar disruptive problems caused by our
subscribers, employees or other Internet users who attempt to invade public and
private data networks. Currently, a significant number of our users authorize us
to bill their credit or debit card accounts directly for all transaction fees
charged by us. We rely on encryption and authentication technology to effect
secure transmission of confidential information, including customer credit and
debit card numbers. Advances in computer capabilities, new discoveries in the
field of cryptography or other developments may result in a compromise or breach
of the technology used by us to protect transaction data. Any system
failure or security breach that causes interruptions or data loss in our
operations or in the computer systems of our customers or leads to the
misappropriation of our or our customers’ confidential information could result
in significant liability to us, cause considerable harm to us and our reputation
and deter current and potential customers from using our services. Any of these
events could have a material adverse effect on our business, prospects,
financial condition, operating results and cash flows.

Our
business is dependent on a small number of telecommunications carriers in each
region and our inability to maintain agreements at attractive rates with such
carriers may negatively impact our business.

Our
business substantially depends on the capacity, affordability, reliability and
security of our telecommunications networks. Only a small number of carriers in
each region, and in some cases only one carrier, offer the telephone number and
network services

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we
require. Certain of our telecommunications services are provided pursuant to
short-term agreements that the providers can terminate or elect not to renew. As
a result, any or all of our current carriers could discontinue providing us with
service at rates acceptable to us, or at all, and we may not be able to obtain
adequate replacements, which could materially and adversely affect our business,
prospects, financial condition, operating results and cash flows.

The
successful operation of our business depends upon the supply of critical
elements and marketing relationships from other companies.

We depend
upon third parties for several critical elements of our business, including
various technology, infrastructure, customer service and marketing components.
We rely on private third-party providers for our Internet and telephony
connections and for co-location of a significant portion of our communications
servers. Any disruption in the services provided by any of these suppliers, or
any failure by them to handle current or higher volumes of activity, could have
a material adverse effect on our business, prospects, financial condition,
operating results and cash flows. To obtain new customers, we have marketing
agreements with operators of leading search engines and Websites. These
arrangements typically are not exclusive and do not extend over a significant
period of time. Failure to continue these relationships on terms that are
acceptable to us or to continue to create additional relationships could have a
material adverse effect on our business, prospects, financial condition,
operating results and cash flows.

Our
success depends in part upon our proprietary technology. We rely on a
combination of patents, trademarks, trade secrets, copyrights and contractual
restrictions to protect our proprietary technology. However, these measures
provide only limited protection, and we may not be able to detect unauthorized
use or take appropriate steps to enforce our intellectual property rights,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the U.S. While we have been issued a number of patents and
other patent applications are currently pending, there can be no assurance that
any of these patents will not be challenged, invalidated or circumvented, or
that any rights granted under these patents will in fact provide competitive
advantages to us.

In
addition, effective protection of patents, copyrights, trademarks, trade secrets
and other intellectual property may be unavailable or limited in some foreign
countries. As a result, we may not be able to effectively prevent competitors in
these regions from infringing our intellectual property rights, which could
reduce our competitive advantage and ability to compete in those regions and
negatively impact our business.

Companies
in the messaging industry have experienced substantial litigation regarding
intellectual property. Currently, we have pending patent infringement lawsuits,
both offensive and defensive, against several companies in this industry. This
or any other litigation to enforce our intellectual property rights may be
expensive and time-consuming, could divert management resources and may not be
adequate to protect our business.

We
may be found to have infringed the intellectual property rights of others, which
could expose us to substantial damages or restrict our operations.

We have
been and expect to continue to be subject to claims and legal proceedings that
we have infringed the intellectual property rights of others. The ready
availability of damages, royalties and the potential for injunctive relief has
increased the costs associated with the litigation and settlement of patent
infringement claims. In addition, we may be required to indemnify our resellers
and users for similar claims made against them. Any claims against us, whether
or not meritorious, could require us to spend significant time and money in
litigation, pay damages, develop new intellectual property or acquire licenses
to intellectual property that is the subject of the infringement claims. These
licenses, if required, may not be available at all or have acceptable terms. As
a result, intellectual property claims against us could have a material adverse
effect on our business, prospects, financial condition, operating results and
cash flows.

We
may be engaged in legal proceedings that could cause us to incur unforeseen
expenses and could occupy a significant amount of our management’s time and
attention.

From time
to time we are subject to litigation or claims, including in the areas of patent
infringement and anti-trust, that could negatively affect our business
operations and financial condition. Such disputes could cause us to incur
unforeseen expenses, occupy a significant amount of our management’s time and
attention and negatively affect our business operations and financial condition.
We are unable to predict the outcome of our currently pending cases. Some or all
of the amount we may be required to pay to defend or to satisfy a judgment or
settlement of any or all of these proceedings may not be covered by insurance.
Under indemnification agreements we have entered into with our current and
former officers and directors, we are required to indemnify them, and advance
expenses to them, in connection with their participation in proceedings arising
out of their service to us. These payments may be material. For a more detailed
description of the lawsuits in which we are involved, see Item 3. Legal
Proceedings.

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The
markets in which we operate are highly competitive and our competitors may have
greater resources to commit to growth, superior technologies, cheaper pricing or
more effective marketing strategies.

For
information regarding our competition, and the risks arising out of the
competitive environment in which we operate, see the section entitled
Competition contained in Item 1 of this Annual Report on Form 10-K. In addition,
some of our competitors include major companies with much greater resources and
significantly larger subscriber bases than we have. Some of these competitors
offer their services at lower prices than we do. These companies may be able to
develop and expand their communications and network infrastructures more
quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily and devote greater resources to the marketing and sale of their
products and services than we can. There can be no assurance that additional
competitors will not enter markets that we are currently serving and plan to
serve or that we will be able to compete effectively. Competitive pressures may
reduce our revenue, operating profits or both.

Our
business is highly dependent on our billing systems.

A
significant part of our revenues depends on prompt and accurate billing
processes. Customer billing is a highly complex process, and our billing systems
must efficiently interface with third-party systems, such as those of credit
card processing companies. Our ability to accurately and efficiently bill our
subscribers is dependent on the successful operation of our billing systems and
the third-party systems upon which we rely, such as our credit card processor,
and our ability to provide these third parties the information required to
process transactions. In addition, our ability to offer new paid services or
alternative-billing plans is dependent on our ability to customize our billing
systems. We are in the process of upgrading our current billing systems to meet
the needs of our growing subscriber base. Any failures or errors in our billing
systems or procedures or resulting from any upgrades to our billing systems or
procedures could impair our ability to properly bill our current customers or
attract and service new customers, and thereby could materially and adversely
affect our business and financial results.

Future
acquisitions could result in dilution, operating difficulties and other harmful
consequences.

We may
acquire or invest in additional businesses, products, services and technologies
that complement or augment our service offerings and customer base. We cannot
assure you that we will successfully identify suitable acquisition candidates,
integrate disparate technologies and corporate cultures and manage a
geographically dispersed company. Acquisitions could divert attention from other
business concerns and could expose us to unforeseen liabilities. In addition, we
may lose key employees while integrating any new companies. We may pay for some
acquisitions by issuing additional common stock, which would dilute current
stockholders. We may also use cash to make acquisitions. We will be required to
review goodwill and other intangible assets for impairment in connection with
past and future acquisitions, which may materially increase operating expenses
if an impairment issue is identified.

Our
success depends on the skills, experience and performance of executive officers,
senior management and other key personnel. The loss of the services of one or
more of our executive officers, senior managers or other key employees could
have a material adverse effect on our business, prospects, financial condition,
operating results and cash flows. Our future success also depends on our
continuing ability to attract, integrate and retain highly qualified technical,
sales and managerial personnel. Competition for these people is intense, and
there can be no assurance that we can retain our key employees or that we can
attract, assimilate or retain other highly qualified technical, sales and
managerial personnel in the future.

As
we continue to grow our international operations, adverse currency fluctuations
and foreign exchange controls could have a material adverse effect on our
balance sheet and results of operations.

As we
expand our international operations, we could be exposed to significant risks of
currency fluctuations. In some countries outside the U.S., we already offer our
services in the applicable local currency, including but not limited to the
Canadian Dollar, the Euro and the British Pound Sterling. As a result,
fluctuations in foreign currency exchange rates affect the results of our
operations, which in turn may materially adversely affect reported earnings and
the comparability of period-to-period results of operations. Changes in currency
exchange rates may also affect the relative prices at which we and foreign
competitors sell our services in the same market. In addition, changes in the
value of the relevant currencies may affect the cost of certain items required
in our operations. Furthermore, we may become subject to exchange control
regulations, which might restrict or prohibit our conversion of other currencies
into U.S. Dollars. We cannot assure you that future exchange rate movements will
not have a material adverse effect on our future business, prospects, financial
condition, operating results and cash flows. To date, we have not entered into
foreign currency hedging transactions to control or minimize these
risks.

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We
are exposed to risk if we cannot maintain or adhere to our internal controls and
procedures.

We have
established and continue to maintain, assess and update our internal controls
and procedures regarding our business operations and financial reporting. Our
internal controls and procedures are designed to provide reasonable assurances
regarding our business operations and financial reporting. However, because
of the inherent limitations in this process, internal controls and procedures
may not prevent or detect all errors or misstatements. To the extent our
internal controls are inadequate or not adhered to by our employees, our
business, financial condition and operating results could be materially
adversely affected.

If we are
not able to maintain internal controls and procedures in a timely manner, or
without adequate compliance, we may be unable to accurately report our financial
results or prevent fraud and may be subject to sanctions or investigations by
regulatory authorities such as the SEC or NASDAQ. Any such action or restatement
of prior-period financial results could harm our business or investors’
confidence in j2 Global, and could cause our stock price to fall.

Risks
Related To Our Industry

Our
services may become subject to burdensome telecommunications regulation, which
could increase our costs or restrict our service offerings.

We
believe that our services are “information services” under the
Telecommunications Act of 1996 and related precedent and therefore would not
currently be subject to U.S. telecommunications services regulation. We provide
our services through data transmissions over public telephone lines and other
facilities provided by carriers. These transmissions are subject to foreign and
domestic laws and regulation by the FCC, state public utility commissions and
foreign governmental authorities. These regulations affect the availability of
telephone numbers, the prices we pay for transmission services, the competition
we face from telecommunications service providers and other aspects of our
market. However, as messaging and communications services converge and as the
services we offer expand, we may become subject to FCC or other regulatory
agency regulation. Changes in the regulatory environment could decrease our
revenues, increase our costs and restrict our service offerings. In many of our
international locations, we are subject to regulation by the governmental
authority.

In the
U.S., Congress and the FCC regulations subsidize portions of the
telecommunications system out of the USF. Congress and the FCC are reviewing the
way it collects USF payments from telecommunications carriers. Among the
proposed changes being considered is imposing a flat fee per telephone number,
which could have a material adverse effect on the provision of our non-paid
services and could cause us to raise the price of our paid service.

In August
2005, the FCC reclassified wireline broadband Internet access services (i.e.,
DSL) as information services, thereby allowing telephone companies to offer
their lines to competing providers for what they decide is a “fair value” rather
than at “low rates.” The decision enables incumbent local exchange carriers to
charge higher rates for underlying broadband transmission service to competitive
local exchange carriers that service some of our lines in various states. This
could have an indirect impact on our profitability and operations.

The TCPA
and FCC rules implementing the TCPA, as amended by the Junk Fax Act, prohibit
sending unsolicited facsimile advertisements to telephone fax machines. The FCC
may take enforcement action against companies that send “junk faxes” and
individuals also may have a private cause of action. Although entities that
merely transmit facsimile messages on behalf of others are not liable for
compliance with the prohibition on faxing unsolicited advertisements, the
exemption from liability does not apply to fax transmitters that have a high
degree of involvement or actual notice of an illegal use and have failed to take
steps to prevent such transmissions. We take significant steps to ensure that
our services are not used to transmit unsolicited faxes on a large scale, and we
do not believe that we have a high degree of involvement or notice of the use of
our service to broadcast junk faxes. However, because fax transmitters do not
enjoy an absolute exemption from liability under the TCPA and related FCC rules,
we could face FCC inquiry and enforcement or civil litigation, or private causes
of action, if someone uses our service for such impermissible purposes. If this
were to occur and we were to be held liable for someone’s use of our service for
transmitting unsolicited faxes, the financial penalties could cause a material
adverse effect on our operations. We are currently involved in litigation
involving alleged violations of the TCPA with Protus IP Solutions, Inc. For more
information about this lawsuit, see Item 3 of this Annual Report on Form 10-K
entitled Legal Proceedings.

Also in
the U.S., the Communications Assistance to Law Enforcement Act (“CALEA”)
requires telecommunications carriers to be capable of performing wiretaps and
recording other call identifying information. In September 2005, the FCC
released an order defining telecommunications carriers that are subject to CALEA
obligations as facilities-based broadband Internet access providers and
Voice-over-Internet-Protocol (“VoIP”) providers that interconnect with the
public switched telephone network. As a result of this definition, we do not
believe that j2 Global is subject to CALEA. However, if the category of service
providers to which CALEA applies broadens to also include information services,
that change may impact our operations.

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In
addition, for calls placed to certain of our European telephone numbers we
receive revenue share payments from the local telecommunications
carrier. The per minute rates applicable to these "calling party pays"
telephone numbers is subject to foreign laws and regulations. A
reduction in the permitted per minute rates would reduce our revenues
and could cause us to restrict our service offerings.

For more
information regarding telecommunications regulation that may affect our
business, please see Item 1 of this Annual Report on Form 10-K entitled
Government Regulation.

Our
business could suffer if we cannot obtain or retain telephone numbers, are
prohibited from obtaining local numbers or are limited to distributing local
numbers to only certain customers.

Our
future success depends on our ability to procure large quantities of local
telephone numbers in the U.S. and foreign countries in desirable locations at a
reasonable cost and offer our services to our prospective customers without
restrictions. Our ability to procure and distribute telephone numbers depends on
factors such as applicable regulations, the practices of telecommunications
carriers that provide telephone numbers, the cost of these telephone numbers and
the level of demand for new telephone numbers. In addition, although we are the
customer of record for all of our U.S. telephone numbers, from time to time,
certain U.S. telephone carriers illegally inhibit our ability to port numbers or
illegally port our telephone numbers away from us to other carriers. Also, in some foreign
jurisdictions, under certain circumstances, our customers are permitted to port
their telephone numbers to another carrier. These factors could lead to
increased cancellations by our customers and loss of our telephone number
inventory. These factors may have a material adverse effect on our business,
prospects, financial condition, operating results, cash flows and growth in or
entry into foreign or domestic markets.

For
example, several years ago the FCC conditionally granted petitions by
Connecticut and California to adopt specialized “unified messaging” area codes,
but neither state has adopted such a code. Adoption of a specialized area code
within a state or nation could harm our ability to complete in that state or
nation if materially affecting our ability to acquire telephone numbers for our
operations or making our services less attractive due to unavailability of
telephone numbers with a local geographic identity.

In
addition, future growth in our subscriber base, together with growth in the
subscriber bases of providers of other fax and/or voicemail to email and unified
messaging services, has increased and may continue to increase the demand for
large quantities of telephone numbers, which could lead to insufficient capacity
and our inability to acquire sufficient telephone numbers to accommodate our
future growth. For more information regarding telecommunications regulation that
may affect our ability to obtain telephone numbers, please see Item 1 of this
Annual Report on Form 10-K entitled Government Regulation.

The
value-added messaging and communications services industry is undergoing rapid
technological changes and we may not be able to keep up.

The
value-added messaging and communications services industry is subject to rapid
and significant technological change. We cannot predict the effect of
technological changes on our business. We expect that new services and
technologies will emerge in the markets in which we compete. These new services
and technologies may be superior to the services and technologies that we use or
these new services may render our services and technologies obsolete. Our future
success will depend, in part, on our ability to anticipate and adapt to
technological changes and evolving industry standards. We may be unable to
obtain access to new technologies on acceptable terms or at all, and may
therefore be unable to offer services in a competitive manner. Any of the
foregoing risks could have a material adverse effect on our business, prospects,
financial condition, operating results and cash flows.

We
are subject to regulations relating to data privacy, security and
retention.

Many U.S.
states and foreign jurisdictions have passed laws in the area of data privacy,
security and retention. The costs of compliance with these laws may increase in
the future as a result of laws that conflict from country to country, changes in
those laws, changes in the interpretations or interpretations that are not
consistent with our current data protection practices. This could reduce demand
for our services, increase the cost of doing business as a result of litigation
costs, increase service or delivery costs or otherwise harm our business.
Failure to comply with these and other international data privacy, security and
retention laws could subject us to lawsuits, fines, criminal penalties,
statutory damages, adverse publicity and other losses that could harm our
business. Further, any failure by us to protect our users’ privacy and data
could result in a loss of user confidence in our services and ultimately in a
loss of users, which could adversely affect our business.

New
and existing regulations could harm our business.

We are
subject to the same foreign and domestic laws as other companies conducting
business on and off the Internet. There are relatively few laws specifically
directed towards online services. However, due to the increasing use of the
Internet and online services, laws relating to the Internet (such as user
privacy, freedom of expression, pricing, fraud, content and quality of products
and

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services,
taxation, advertising, intellectual property rights and information security)
are being debated around the world. It is not clear how existing laws governing
issues such as property ownership, copyrights and other intellectual property
issues, taxation, libel and defamation, obscenity and personal privacy apply to
online businesses because many of these laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not contemplate or
address the related issues. Enactment of new laws and regulations, or the
interpretation of existing laws and regulations in a way that is adverse to us,
could have a material adverse effect on our business, prospects, financial
condition, operating results and cash flows.

The
Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003
(the “CAN-SPAM Act”), which allows for penalties that run into the millions of
dollars, requires commercial emails to include identifying information from the
sender and a mechanism for the receiver to opt out of receiving future emails.
We believe that our email practices comply with the requirements of the CAN-SPAM
Act. If we were ever found to be in violation of the CAN-SPAM Act, that could
have a material adverse effect on our business, financial condition, operating
results and cash flows.

In
addition, because our services are accessible worldwide and we continue to
expand our international activities, foreign jurisdictions may claim that we are
required to comply with their laws. Non-U.S. laws regulating Internet companies
may give different rights to consumers, content owners and users than comparable
U.S. laws. Compliance may be more costly or may require us to change our
business practices or restrict our service offerings relative to those in the
U.S. Our failure to comply with foreign laws could subject us to penalties
ranging from criminal prosecution to bans on our services.

Increased
cost of email transmissions could have a material adverse effect on our
business.

We rely
on email for the delivery of our fax and voicemail messages. In addition, we
derive some advertising revenues through the delivery of email messages to our
free subscribers and we regularly communicate with our subscribers via email. We
also offer email services through Electric Mail. If regulations or other changes
in the industry lead to a charge associated with the sending or receiving of
email messages, the cost of providing our services would increase and, if
significant, could materially adversely affect our business, prospects,
financial condition, operating results and cash flows.

Risks
Related To Our Stock

In
order to sustain our growth, we must continue to attract new paid subscribers at
a greater rate and with at least an equal amount of revenues per subscriber than
we lose existing paid subscribers.

We may
not be able to continue to grow or even sustain our current base of paid
customers on a quarterly or annual basis. Our future success depends heavily on
the continued growth of our paid user base. In order to sustain our growth we
must continuously obtain an increasing number of paid users to replace the users
who cancel their service. In addition, these new users must provide revenue
levels per subscriber that are greater than or equal to the levels of our
current customers or the customers they are replacing. We must also retain our
existing customers while continuing to attract new ones at desirable costs. We
cannot be certain that our continuous efforts to offer high quality services at
attractive prices will be sufficient to retain our customer base or attract new
customers at rates sufficient to offset customers who cancel their service. In
addition, we believe that competition from companies providing similar or
alternative services has caused, and may continue to cause, some of our
customers or prospective customers to sign up with or to switch to our
competitors’ services. Moreover, we have experienced, and may continue to
experience, an overall reduction in our average revenue per subscriber due to a
combination of a shift in the mix of products sold and reduced usage from
customers. These factors may adversely affect our customer retention rates, the
number of our new customer acquisitions, our average revenue per subscriber
and/or subscriber usage levels. Any combination of a decline in our rate of new
customer sign-ups, decline in usage rates of our customers, decline in average
revenue per subscriber, decline in customer retention rates or decline in the
size of our overall customer base may result in a decrease in our revenues,
which could have a material adverse effect on our business, prospects, financial
condition, operating results and cash flows.

As of
February 16, 2010, substantially all of our outstanding shares of common stock
were available for resale, subject to volume and manner of sale limitations
applicable to affiliates under SEC Rule 144. Sales of a substantial number of
shares of common stock in the public market or the perception of such sales
could cause the market price of our common stock to decline. These sales also
might make it more difficult for us to sell equity securities in the future at a
price that we think is appropriate, or at all.

Anti-takeover
provisions could negatively impact our stockholders.

Provisions
of Delaware law and of our certificate of incorporation and bylaws could make it
more difficult for a third party to

- 15
-

acquire
control of us. For example, we are subject to Section 203 of the Delaware
General Corporation Law, which would make it more difficult for another party to
acquire us without the approval of our board of directors. Additionally, our
certificate of incorporation authorizes our board of directors to issue
preferred stock without requiring any stockholder approval, and preferred stock
could be issued as a defensive measure in response to a takeover proposal. These
provisions could make it more difficult for a third party to acquire us even if
an acquisition might be in the best interest of our stockholders.

Our
stock price may be volatile or may decline.

Our stock
price and trading volumes have been volatile and we expect that this volatility
will continue in the future due to factors, such as:

•

Assessments
of the size of our subscriber base and our average revenue per subscriber,
and comparisons of our results in these and other areas versus prior
performance and that of our
competitors;

•

Variations
between our actual results and investor
expectations;

•

Regulatory
or competitive developments affecting our
markets;

•

Investor
perceptions of us and comparable public
companies;

•

Conditions
and trends in the communications, messaging and Internet-related
industries;

•

Announcements
of technological innovations and
acquisitions;

•

Introduction
of new services by us or our
competitors;

•

Developments
with respect to intellectual property
rights;

•

Conditions
and trends in the Internet and other technology
industries;

•

Rumors,
gossip or speculation published on public chat or bulletin
boards;

•

General
market conditions; and

•

Geopolitical
events such as war, threat of war or terrorist
actions.

In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have affected the market prices for the common
stocks of technology and other companies, particularly communications and
Internet companies. These broad market fluctuations have previously resulted in
a material decline in the market price of our common stock. In the past,
following periods of volatility in the market price of a particular company’s
securities, securities class action litigation has often been brought against
that company. We may become involved in this type of litigation in the future.
Litigation is often expensive and diverts management’s attention and resources,
which could have a material adverse effect on our business, prospects, financial
condition, operating results and cash flows.

Item
1B. Unresolved Staff Comments

None.

Item
2. Properties

As of
December 31, 2009, we were leasing approximately 40,000 square feet of office
space for our headquarters in Los Angeles, California under a lease that expires
in January 2010 which was extended through January 31, 2020. We lease
this space from an entity indirectly controlled by our Chairman of the Board.
Additionally, we have smaller leased office facilities in British Columbia;
California; Hong Kong; Illinois; and Ireland.

All of
our network equipment is housed either at our leased properties or at one of our
multiple co-location facilities around the world.

- 16
-

Item
3. Legal Proceedings

Overview
of Legal Proceedings Against Us

From time
to time, we are involved in litigation and other disputes or regulatory
inquiries that arise in the ordinary course of our business. Many of these
actions involve or are filed in response to patent actions filed by us against
others. The number and significance of these disputes and inquiries has
increased as our business has expanded and j2 Global has grown. Any claims or
regulatory actions against us, whether meritorious or not, could be
time-consuming, result in costly litigation, require significant management time
and result in diversion of significant operational resources.

As part
of our continuing effort to prevent the unauthorized use of our intellectual
property, we have initiated litigation against the following companies, among
others, for infringing our patents relating to Internet fax and other messaging
technologies: Open Text Corporation and its Captaris business (“Open Text”),
Integrated Global Concepts, Inc. (“IGC”), Venali, Inc. (“Venali”), Protus IP
Solutions, Inc. (“Protus”), EasyLink Services International Corp. (“EasyLink”)
and Packetel, Inc. (“Packetel”). In January 2010 we settled our
patent infringement suit against Comodo Group, Ltd. Three of the
patents at issue in some of these lawsuits have been reaffirmed through
reexamination proceedings with the United States Patent and Trademark
Office.

Open
Text, Venali, Protus, EasyLink and Packetel have each filed counterclaims
against us, including seeking declaratory judgments of non-infringement,
invalidity and unenforceability of our patents. Open Text and Protus have also
asserted counterclaims purporting to allege antitrust violations of Section 2 of
the Sherman Act and California’s Business and Professions Code §§ 16720 and
17200. Open Text and Protus are seeking dismissal of our patent
infringement claims, damages, including treble and punitive damages, injunctions
against further violations, and attorneys’ fees and costs. All of
these cases are being litigated in the United States District Court for the
Central District of California before the same judge, who has indicated that the
cases will be handled in a coordinated fashion. Discovery in all of
these cases is underway. Trial is currently scheduled to begin March
1, 2011. We are also pursuing claims against Protus in Canada based
on Canadian patents and Protus has asserted similar anti-competition claims
against us in response.

In July
2005, one of our affiliates filed a separate case against Venali in the United
States District Court for the Central District of California, asserting
infringement of several other U.S. patents. Venali filed various counterclaims
against us and our affiliate on December 27, 2006, which included antitrust
counterclaims related in substantial part to the patent infringement claims by
our affiliate against Venali. On May 11, 2007, the court entered a claim
construction order regarding the disputed terms of the patents-in-suit. On
August 12, 2008, the court granted Venali’s motion for summary judgment of
non-infringement. On November 3, 2008, the court granted our summary
judgment motion on Venali’s remaining counterclaims, which alleged antitrust
violations based on our enforcement of our patents. We appealed the
non-infringement ruling in the case to the United States Court of
Appeals for the Federal Circuit. On January 22, 2010, the Federal Circuit
issued a decision affirming the District Court’s grant of summary judgment of
non-infringement. Venali did not appeal the dismissal of its
antitrust counterclaims.

On May
12, 2003, we filed an application to register the eFax mark on the United States
Patent and Trademark Office (“USPTO”) Principal Register, which the USPTO
approved and published for opposition. In July 2005, Protus filed an
opposition proceeding before the USPTO Trademark Trial and Appeal Board seeking
to prevent such registration. In the opposition proceeding, Protus
claims that the mark is generic or merely descriptive and not entitled to
registration. On September 1, 2005, we responded to Protus’ Notice of
Opposition. The parties are engaged in discovery. Trial
before the Trademark Trial and Appeal Board is set to conclude on September 15,
2010.

In
January 2006, we filed a complaint in the United States District Court for the
Central District of California against Protus asserting causes of action for
violation of the Federal Telephone Consumer Protection Act, trespass to
chattels, and unfair business practices as a result of Protus sending “junk
faxes” to us and our customers. We are seeking statutory and treble damages,
attorneys’ fees, interest and costs, as well as a permanent injunction against
Protus continuing its junk fax sending practices. In September 2007, Protus
filed a counterclaim against us asserting the same causes of action as those
asserted against it, as well as claims for false advertising, trade libel,
tortious interference with prospective economic advantage and defamation. Protus
is seeking, among other things, general and special damages, treble damages,
punitive damages, attorneys’ fees, interest and costs, as well as a permanent
injunction against us sending any more junk faxes. The parties are engaged in
discovery. Trial is currently set for January 18, 2011.

On
September 15, 2006, one of our affiliates filed a patent infringement suit
against IGC in the United States District Court for the Northern District
of Georgia. On May 13, 2008, IGC filed counterclaims alleging
violations of Section 2 of the Sherman Act and breach of contract. IGC is
seeking damages, including treble and punitive damages, an injunction against
further violations, divestiture of certain assets, attorneys’ fees and costs. On
June 13, 2008, we moved to dismiss the amended counterclaims, and on August 28,
2008, we moved to stay the action pending the appeal in the 2005 case against
Venali, described above, which involves the same patents and claims at issue in
the IGC action. On February 18, 2009, the Court granted our motion to stay the
case pending the conclusion of the Venali appeal. On January 29,
2010, we gave the Court notice of the Federal Circuit’s decision in the Venali
appeal, thereby lifting the stay. No further proceedings have
occurred thus far.

- 17
-

On
December 12, 2006, Venali filed suit against us in the United States District
Court for the Southern District of Florida, alleging infringement of U.S. Patent
Number 7,114,004 (the “ ’004 Patent”). Venali is seeking damages in the
amount of lost profits or a reasonable royalty, a permanent injunction against
continued infringement, treble damages, attorneys’ fees, interest and costs. On
March 6, 2007, we filed an answer to the complaint denying liability. On May 17,
2007, we filed a request with the USPTO for reexamination of the ’004 Patent,
which request was granted on July 27, 2007. On August 20, 2007, the court
granted our motion to stay the action pending the reexamination. On
October 1, 2009, the USPTO issued a Notice of Intent to Issue a Reexamination
Certificate confirming the claims of the ’004 Patent. On December 1,
2009, the Court lifted the stay. Discovery is ongoing in this
case. Trial is currently scheduled to begin March 14,
2011.

On May 9,
2007, Bear Creek Technologies, Inc. (“Bear Creek”) filed suit against us in the
United States District Court for the Eastern District of Texas, alleging
infringement of U.S. Patent Number 6,985,494 (the “ ‘494 patent”). Bear
Creek is seeking damages in at least the amount of a reasonable royalty, a
permanent injunction against continued infringement, treble damages, attorneys’
fees, interest and costs. On June 29, 2007, we filed an answer to the complaint
denying liability, asserting affirmative defenses and asserting counterclaims of
non-infringement and invalidity. On September 21, 2007, Bear Creek filed its
reply to our counterclaims, denying each one. On February 11, 2008 we filed a
request for reexamination of the ‘494 patent with the USPTO. On February 28,
2008, the Court stayed the case during the pendency of the reexamination
proceedings. On April 18, 2008, the USPTO granted the reexamination
request. On February 12, 2009, the USPTO finally rejected the reexamined
claims, and Bear Creek failed to file a response within the prescribed
timeframe. On June 16, 2009, the USPTO issued a right to appeal the
examiner’s rejection. Bear Creek filed its appeal on September 16,
2009. We filed our response to Bear Creek’s appeal on October 14,
2009 and are awaiting an answer from the USPTO examiner. On
September 10, 2009, the Court “Administratively Closed” the case pending
resolution of the reexamination proceeding.

In
November 2008, we and one of our affiliates filed a lawsuit against Zilker
Ventures, LLC and Choosewhat.com, LLC (collectively, “Zilker”) in the United
States District Court for the Central District of California alleging
infringement of our eFax trademark and for false advertising in violation of §
43(a) of the Lanham Act and California’s Business and Professions Code §17200 et
seq. The lawsuit sought an accounting for Zilker’s profits, our lost profits,
attorney fees, interest and costs, as well as a permanent injunction against
Zilker’s trademark infringement and false advertising activities. On
December 23, 2008, Zilker filed a counterclaim seeking a declaration that our
eFax trademark is generic or merely descriptive and not entitled to trademark
protection or registration and that Zilker’s use of the eFax mark was a fair
use. Zilker sought to recover attorney fees and costs in addition to declaratory
relief. On September 14, 2009, Zilker filed a motion for summary
judgment that it did not infringe our eFax mark, did not engage in false
advertising, and on its claim for a declaration that our eFax mark is generic or
merely descriptive. On November 4, 2009, the Court denied the
motion. On November 13, 2009, the case was dismissed pursuant to a
settlement agreement.

We do not
believe, based on current knowledge, that any of the foregoing legal proceedings
or claims is likely to have a material adverse effect on our consolidated
financial position, results of operations or cash flows. However, depending on
the amount and the timing, an unfavorable resolution of some or all of these
matters could materially affect our consolidated financial position, results of
operations or cash flows in a particular period. We have not accrued for a loss
contingency relating to these legal proceedings because unfavorable outcomes are
not considered by management to be probable or reasonably
estimable.

Item
4. Submission of Matters to a Vote of Security
Holders

No
matters were submitted to a vote of security holders during the fourth quarter
of 2009.

Our
common stock is traded on the NASDAQ Global Select Market under the symbol
“JCOM”. The following table sets forth the high and low closing sale prices for
our common stock for the periods indicated, as reported by the NASDAQ Global
Select Market.

High

Low

Year
ended December 31, 2009

First
Quarter

$

21.89

$

16.26

Second
Quarter

24.80

20.18

Third
Quarter

24.53

20.35

Fourth
Quarter

22.29

19.28

Year
ended December 31, 2008

First
Quarter

24.00

18.59

Second
Quarter

26.80

20.91

Third
Quarter

26.97

21.30

Fourth
Quarter

22.96

13.74

Holders

We had
302 registered stockholders as of February 16, 2010. That number excludes the
beneficial owners of shares held in “street” names or held through participants
in depositories.

Dividends

We have
never paid cash dividends on our stock and currently anticipate that we will
continue to retain any future earnings to finance the growth of our
business.

Recent
Sales of Unregistered Securities

We did
not issue any unregistered securities during the fourth quarter of
2009.

Issuer
Purchases of Equity Securities

We did
not repurchase any of our equity securities during the fourth quarter of
2009.

Equity
Compensation Plan Information

The
following table provides information as of December 31, 2009 regarding shares
outstanding and available for issuance under j2 Global’s existing equity
compensation plans:

Plan Category

Number
of Securities

to
be Issued Upon

Exercise
of

Outstanding

Options,

Warrants
and

Rights

(a)

Weighted-Average

Exercise
Price of

Outstanding

Options,
Warrants

and
Rights

(b)

Number
of Securities

Remaining
Available

for
Future Issuance

Under
Equity

Compensation

Plans
(Excluding

Securities
Reflected in

Column
(a))

(c)

Equity compensation plans
approved by security holders

4,480,591

$

13.17

4,203,637

Equity compensation plans not
approved by security holders

—

—

—

Total

4,480,591

$

13.17

4,203,637

The
number of securities remaining available for future issuance includes 2,542,110
and 1,661,527 under our 2007 Stock Plan and 2001 Employee Stock Purchase Plan,
respectively. Please refer to Note 11 to the accompanying consolidated financial
statements for a description of these Plans as well as our Second Amended and
Restated 1997 Stock Option Plan, which terminated in 2007.

- 19
-

Performance
Graph

This
performance graph shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise
subject to the liabilities under that Section and shall not be deemed to be
incorporated by reference into any filing of j2 Global under the Securities Act
of 1933, as amended, or the Exchange Act.

The
following graph compares the cumulative total stockholder return for j2 Global,
the NASDAQ Telecommunications Index and an index of companies that j2 Global has
selected as its peer group. The peer group index included in the performance
graph consists of: deltathree, Inc., Easylink Services International Corporation
(formerly Easylink Services Corporation), C2 Global Technologies, Inc. (formerly
I-Link Corporation), iBasis, Inc. and Premiere Global Services, Inc. (formerly
PTEK Holdings, Inc.). We believe that the peer group index provides a
representative group of companies in the outsourced messaging and communications
industry. Measurement points are December 31, 2004 and the last trading day in
each of j2 Global’s fiscal quarters through the end of fiscal 2009. The graph
assumes that $100 was invested on December 31, 2004 in j2 Global’s common stock
and in each of the indices, and assumes reinvestment of any dividends. No
dividends have been declared or paid on j2 Global’s common stock. The stock
price performance on the following graph is not necessarily indicative of future
stock price performance.

The
following selected consolidated financial data should be read in conjunction
with our consolidated financial statements, the related Notes contained in this
Annual Report on Form 10-K and the information contained herein in Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations. Historical results are not necessarily indicative of future results.
All share numbers and per share amounts have been retroactively restated to
reflect our May 2006 two-for-one stock split effected in the form of a stock
dividend.

Year Ended December 31,

2009

2008

2007

2006

2005

(In
thousands except share and per share amounts)

Statement
of Operations Data:

Revenues

$

245,571

$

241,513

$

220,697

$

181,079

$

143,941

Cost
of revenues

44,730

46,250

43,987

36,723

29,844

Gross
profit

200,841

195,263

176,710

144,356

114,097

Operating
expenses:

Sales
and marketing

37,006

41,270

38,768

30,792

23,025

Research,
development and engineering

11,657

12,031

11,833

8,773

7,134

General
and administrative

45,275

44,028

39,683

38,754

23,464

Loss
on disposal of long-lived asset

2,442

—

—

—

—

Total
operating expenses

96,380

97,329

90,284

78,319

53,623

Operating
earnings

104,461

97,934

86,426

66,037

60,474

Other
income and expenses:

Gain
on sale of investment

—

—

—

—

9,808

Other-than-temporary
impairment losses

(9,343

)

Interest
and other income

3,100

4,778

9,272

7,269

3,416

Interest
and other expense

(439

)

(559

)

(237

)

(74

)

(76

)

Total
other income and expenses

(6,682

)

4,219

9,035

7,195

13,148

Earnings
before income taxes

97,779

102,153

95,461

73,232

73,622

Income
tax expense

30,952

29,591

27,000

20,101

23,004

Net
earnings

$

66,827

$

72,562

$

68,461

$

53,131

$

50,618

Net
earnings per common share:

Basic

$

1.52

$

1.63

$

1.40

$

1.08

$

1.05

Diluted

$

1.48

$

1.58

$

1.35

$

1.04

$

0.99

Weighted
average shares outstanding:

Basic

43,936,194

44,609,174

48,953,483

49,209,129

48,224,818

Diluted

45,138,001

45,937,506

50,762,007

51,048,995

51,171,794

December 31,

2009

2008

2007

2006

2005

(In
thousands)

Balance
Sheet Data:

Cash
and cash equivalents

$

197,411

$

150,780

$

154,220

$

95,605

$

36,301

Working
capital

227,538

142,123

193,794

165,207

107,938

Total
assets

414,001

322,040

350,409

288,160

221,944

Other
long-term liabilities

2,094

1,022

59

—

149

Total
stockholders’ equity

336,172

249,980

282,614

254,741

202,255

_______________

Cash
Dividends

No cash
dividends were paid for the years presented.

- 22
-

Item
7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations

In
addition to historical information, the following discussion and analysis of
management contains forward-looking statements. These forward-looking statements
involve risks, uncertainties and assumptions. The actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including but not limited to those discussed below, the
results of any acquisition we may complete and the factors discussed in Item 1A
in this Annual Report on Form 10-K entitled Risk Factors. Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
management’s opinions only as of the date hereof. j2 Global undertakes no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. Readers should carefully review the risk factors
described in this document as well as in other documents we file from time to
time with the SEC, including the Quarterly Reports on Form 10-Q and any Current
Reports on Form 8-K filed or to be filed by us in 2010.

Overview

j2 Global
Communications, Inc. (“j2 Global”, “our”, “us” or “we”) is a Delaware
corporation founded in 1995. By leveraging the power of the Internet, we provide
outsourced, value-added messaging and communications services to individuals and
businesses throughout the world. We offer fax, voicemail, email and call
handling services and bundled suites of certain of these services. We market our
services principally under the brand names eFax®,
eFax Corporate®,
Onebox®,
eVoice® and
Electric Mail®.

We
deliver many of our services through our global telephony/Internet Protocol
(“IP”) network, which spans more than 3,500 cities in 46 countries across six
continents. We have created this network, and continuously seek to expand it,
through negotiation with U.S. and foreign telecommunications and co-location
providers for telephone numbers (also referred to as Direct Inward Dial numbers
or “DIDs”), Internet bandwidth and co-location space for our equipment. We
maintain and seek to grow an inventory of telephone numbers to be assigned to
new customers. Most of these numbers are “local” (as opposed to toll-free),
which enables us to provide our paying subscribers telephone numbers with a
geographic identity. In addition to growing our business internally, we have
used acquisitions to grow our customer base, enhance our technology and acquire
skilled personnel.

Our core
services include fax, voicemail, email and call handling, as well as bundled
suites of certain of these services. These are business services that make our
customers more efficient, more mobile, more cost-effective and more secure than
traditional alternatives. We generate substantially all of our revenue from
subscribers that pay subscription and usage fees. Subscription fees are referred
to as “fixed” revenues, while usage fees are referred to as “variable” revenues.
We also generate revenues from patent licensing and sales, advertising and
revenue share from our customers’ use of premium rate telephone numbers. Of the
11.2 million telephone numbers deployed as of December 31, 2009, approximately
1.3 million were serving paying subscribers, with the balance deployed to free
subscribers, including those with premium rate telephone numbers. We operate in
one reportable segment: value-added messaging and communications services, which
provides for the delivery of fax, voice and email messages and communications
via the telephone and/or Internet networks.

During
the past three years, we have derived a substantial portion of our revenues from
our DID-based services, including eFax, Onebox and eVoice. As a result, we
believe that paying DIDs and the revenues associated therewith are an important
metric for understanding our business. It has been and continues to be our
objective to increase the number of paying DIDs through a variety of
distribution channels and marketing arrangements and by enhancing our brand
awareness. In addition, we seek to increase revenues through a combination of
stimulating use by our customers of usage-based services, introducing new
services and instituting appropriate price increases to our fixed monthly
subscription and other fees.

For the
past three years, 90% or more of our total revenues have been produced by our
DID-based services. DID-based revenues have increased to $233.4 million from
$205.3 million for the three-year period ending December 31, 2009. The primary
reason for this increase was a 20% increase in the number of paid DIDs over this
period. We expect that DID-based revenues will continue to be a dominant driver
of total revenues.

The
following table sets forth our key operating metrics for the years ended
December 31, 2009, 2008 and 2007 (in thousands except for percentages and
average revenue per paying telephone number):

December 31,

2009

2008

2007

Free
service telephone numbers

9,910

10,363

10,874

Paying
telephone numbers

1,275

1,236

1,064

Total
active telephone numbers

11,185

11,599

11,938

- 23
-

Year Ended December 31,

2009

2008

2007

Subscriber
revenues:

Fixed

$

197,918

$

186,459

$

162,099

Variable

44,004

50,382

50,230

Total
subscriber revenues

$

241,922

$

236,841

$

212,329

Percentage
of total subscriber revenues:

Fixed

81.8%

78.7%

76.3%

Variable

18.2%

21.3%

23.7%

Revenues:

DID-based

$

233,443

$

228,984

$

205,290

Non-DID-based

12,128

12,529

15,407

Total
revenues

$

245,571

$

241,513

$

220,697

Average
monthly revenue per paying telephone number (1)

$

15.09

$

15.96

$

16.75

(1)
See calculation of average revenue per paying telephone number at the end
of this section, Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations.

Critical
Accounting Policies and Estimates

In the
ordinary course of business, we have made a number of estimates and assumptions
relating to the reporting of results of operations and financial condition in
the preparation of our financial statements in conformity with U.S. generally
accepted accounting principles (“GAAP”). Actual results could differ
significantly from those estimates under different assumptions and conditions.
We believe that the following discussion addresses our most critical accounting
policies, which are those that are most important to the portrayal of our
financial condition and results and require management’s most difficult,
subjective and complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently
uncertain.

Revenue. Our
revenue consists substantially of monthly recurring and usage-based subscription
fees. In accordance with GAAP, we defer the portions of monthly recurring and
usage-based subscription fees collected in advance and recognize them in the
period earned. Additionally, we defer and recognize subscriber activation fees
and related direct incremental costs over a subscriber’s estimated useful
life.

Investments. We
account for our investments in debt securities in accordance with FASB ASC Topic
No. 320, Investments – Debt and Equity Securities (“ASC 320”). ASC 320 requires
that certain debt and equity securities be classified into one of three
categories; trading, available-for-sale or held-to-maturity securities. These j2
Global investments are typically comprised primarily of readily marketable
corporate debt securities, auction rate debt, preferred securities and
certificates of deposits. We determine the appropriate classification of our
investments at the time of acquisition and reevaluate such determination at each
balance sheet date. Held-to-maturity securities are those investments that we
have the ability and intent to hold until maturity. Held-to-maturity securities
are recorded at amortized cost. Available-for-sale securities are recorded at
fair value, with unrealized gains or losses recorded as a separate component of
accumulated other comprehensive income (loss) in stockholders’ equity until
realized. Trading securities are carried at fair value, with unrealized gains
and losses included in interest and other income on our consolidated statement
of operations. All securities are accounted for on a specific identification
basis. We assess whether an other-than-temporary impairment loss on an
investment has occurred due to declines in fair value or other market conditions
(see Note 4 of the Notes to Consolidated Financial Statements included elsewhere
in this Annual Report on Form 10-K).

j2 Global
complies with the provisions of FASB ASC Topic No. 820, Fair Value Measurements
and Disclosures (“ASC 820”), which defines fair value, provides a framework for
measuring fair value and expands the disclosures required for fair value
measurements. ASC 820 clarifies that fair value is an exit price, representing
the amount that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants. As such, fair
value is a market-based measurement that is determined based on assumptions that
market participants would use in pricing an asset or a liability. As a basis for
considering such assumptions, ASC 820 establishes a three-tier value hierarchy,
which prioritizes the inputs used in the valuation methodologies in measuring
fair value:

Level
2 – Include other inputs that are directly or indirectly observable in the
marketplace.

§

Level
3 – Unobservable inputs which are supported by little or no market
activity.

The fair
value hierarchy also requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair
value.

We
measure our cash equivalents and investments at fair value. Our cash equivalents
and short-term investments and other debt securities are primarily classified
within Level 1. Investments in auction rate securities are classified
within Level 3. The valuation technique used under Level 3 consists of a
discounted cash flow analysis which included numerous assumptions, some of which
include prevailing implied credit risk premiums, incremental credit spreads,
illiquidity risk premium, among others and a market comparables model where the
security is valued based upon indicators from the secondary market of what
discounts buyers demand when purchasing similar auction rate securities. There
was no change in the technique during the period. Cash equivalents
and marketable securities are valued primarily using quoted market prices
utilizing market observable inputs. Our investments in auction rate securities
are classified within Level 3 because there are no active markets for the
auction rate securities and therefore we are unable to obtain independent
valuations from market sources. Some of the inputs to the cash flow model are
unobservable in the market. The total amount of assets measured using Level 3
valuation methodologies represented less than 1% of total assets as of December
31, 2009.

Share-Based Compensation
Expense. j2 Global complies with the provisions of FASB ASC
Topic No. 718, Compensation – Stock Compensation (“ASC 718”). Accordingly, we
measure share-based compensation expense at the grant date, based on the fair
value of the award, and recognize the expense over the employee’s requisite
service period using the straight-line method. The measurement of share-based
compensation expense is based on several criteria including, but not limited to,
the valuation model used and associated input factors, such as expected term of
the award, stock price volatility, risk free interest rate and award
cancellation rate. These inputs are subjective and are determined using
management’s judgment. If differences arise between the assumptions used in
determining share-based compensation expense and the actual factors, which
become known over time, we may change the input factors used in determining
future share-based compensation expense. Any such changes could materially
impact our results of operations in the period in which the changes are made and
in periods thereafter. We elected to adopt the alternative transition
method for calculating the tax effects of share-based compensation and continue
to use the simplified method in developing the expected term used for our
valuation of share-based compensation in accordance with ASC 718.

Long-lived and Intangible
Assets. We account for long-lived assets in accordance with
the provisions of FASB ASC Topic No. 360, Property, Plant, and Equipment (“ASC
360”), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets.

We assess
the impairment of identifiable intangibles and long-lived assets whenever events
or changes in circumstances indicate that the carrying value may not be
recoverable. Factors we consider important which could individually or in
combination trigger an impairment review include the following:

significant
changes in the manner of our use of the acquired assets or the strategy
for our overall business;

•

significant
negative industry or economic
trends;

•

significant
decline in our stock price for a sustained period;
and

•

our
market capitalization relative to net book
value.

If we
determined that the carrying value of intangibles and long-lived assets may not
be recoverable based upon the existence of one or more of the above indicators
of impairment, we would record an impairment equal to the excess of the carrying
amount of the asset over its estimated fair value.

We have
assessed whether events or changes in circumstances have occurred that
potentially indicate the carrying value of long-lived assets may not be
recoverable. During the fourth quarter of 2009, we determined based upon our
current and future business needs that the rights to certain external
administrative software will not provide any future
benefit. Accordingly, we recorded a disposal in the amount of $2.4
million to the consolidated statement of operations representing the capitalized
cost as of December 31, 2009. Total disposals of long-lived assets
for the year ended December 31, 2009, 2008 and 2007 was approximately $2.5
million, zero and $0.2 million, respectively.

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-

Goodwill and Purchased Intangible
Assets. We evaluate our goodwill and intangible assets
for impairment pursuant to FASB ASC Topic No. 350, Intangibles – Goodwill and
Other (“ASC 350”), which provides that goodwill and other intangible assets with
indefinite lives are not amortized but tested for impairment annually or more
frequently if circumstances indicate potential impairment. The impairment test
is comprised of two steps: (1) a reporting unit’s fair value is compared to its
carrying value; if the fair value is less than its carrying value, impairment is
indicated; and (2) if impairment is indicated in the first step, it is measured
by comparing the implied fair value of goodwill and intangible assets to their
carrying value at the reporting unit level. We completed the required impairment
review at the end of 2009, 2008 and 2007 and noted no impairment. Consequently,
no impairment charges were recorded.

Income
Taxes. We account for income taxes in accordance with
FASB ASC Topic No. 740, Income Taxes (“ASC 740”), which requires that deferred
tax assets and liabilities be recognized using enacted tax rates for the effect
of temporary differences between the book and tax basis of recorded assets and
liabilities. ASC 740 also requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some or all of the net
deferred tax assets will not be realized. Our valuation allowance is reviewed
quarterly based upon the facts and circumstances known at the time. In assessing
this valuation allowance, we review historical and future expected operating
results and other factors to determine whether it is more likely than not that
deferred tax assets are realizable.

Income Tax
Contingencies. We calculate current and deferred tax provisions
based on estimates and assumptions that could differ from the actual results
reflected in income tax returns filed during the following year. Adjustments
based on filed returns are recorded when identified in the subsequent
year.

Effective
January 1, 2007, the FASB issued new accounting guidance regarding uncertain
income tax positions. This guidance found under FASB ASC Topic 740, Income
Taxes, provides guidance on the minimum threshold that an uncertain income tax
position is required to meet before it can be recognized in the financial
statements and applies to all tax positions taken by a company. ASC 740 contains
a two-step approach to recognizing and measuring uncertain income tax positions.
The first step is to evaluate the income tax position for recognition by
determining if the weight of available evidence indicates that it is more likely
than not that the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step is to measure
the tax benefit as the largest amount that is more than 50% likely of being
realized upon settlement. If it is not more likely than not that the benefit
will be sustained on its technical merits, no benefit will be recorded.
Uncertain income tax positions that relate only to timing of when an item is
included on a tax return are considered to have met the recognition threshold.
We recognize accrued interest and penalties related to uncertain income tax
positions in income tax expense on our consolidated statement of operations. At
January 1, 2007, we had $25.0 million in liabilities for uncertain income tax
positions, including $6.1 million recognized under FASB ASC Topic No. 450,
Contingencies (“ASC 450”) and carried forward from prior years and an additional
charge of $18.9 million to retained earnings. On a quarterly basis, we evaluate
uncertain income tax positions and establish or release reserves as appropriate
under GAAP.

As a
multinational corporation, we are subject to taxation in many jurisdictions, and
the calculation of our tax liabilities involves dealing with uncertainties in
the application of complex tax laws and regulations in various taxing
jurisdictions. Our estimate of the potential outcome of any uncertain tax issue
is subject to management’s assessment of relevant risks, facts and circumstances
existing at that time. Therefore, the actual liability for U.S. or foreign taxes
may be materially different from our estimates, which could result in the need
to record additional tax liabilities or potentially to reverse previously
recorded tax liabilities. In addition, we may be subject to examination of our
tax returns by the U.S. Internal Revenue Service and other domestic and foreign
tax authorities. We are currently under audit by the Internal Revenue Service
for tax years 2004 through 2008. In addition, we are under audit by the
California Franchise Tax Board for tax years 2005 through 2007 and by the
Illinois Department of Revenue for 2005 and 2006. We are also under audit by
various other states for non-income related taxes. It is
possible that these audits may conclude in the next 12 months and that the
unrecognized tax benefits we have recorded in relation to these tax years may
change compared to the liabilities recorded for the periods. However, it is not
possible to estimate the amount, if any, of such change. We adequately establish
reserves for these tax contingencies when we believe that certain tax positions
might be challenged despite our belief that our tax positions are fully
supportable. We adjust these reserves when changing events and circumstances
arise.

Non-Income Tax
Contingencies. In accordance with the provisions of ASC 450,
we make judgments regarding the future outcome of contingent events and record
loss contingency amounts that are probable and reasonably estimable based upon
available information. The amounts recorded may differ from the actual income or
expense that occurs when the uncertainty is resolved. The estimates that we make
in accounting for contingencies and the gains and losses that we record upon the
ultimate resolution of these uncertainties could have a significant effect on
the liabilities and expenses in our financial statements. As of December 31,
2009, we had $0.8 million of non-income tax related contingent
liabilities.

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-

Recent
Accounting Pronouncements

See Note
2 – Basis of
Presentation and Summary of Significant Accounting Policies, Recent Accounting
Policiesof our
accompanying consolidated financial statements for a full description of recent
accounting pronouncements and our expectations of their impact on our
consolidated financial position and results of operations.

Results
of Operations

Years
Ended December 31, 2009, 2008 and 2007

The
following table sets forth, for the years ended December 31, 2009, 2008 and
2007, information derived from our statements of operations as a percentage of
revenues. This information should be read in conjunction with the accompanying
financial statements and the Notes to Consolidated Financial Statements included
elsewhere in this Annual Report on Form 10-K.

Year Ended December 31,

2009

2008

2007

Revenues

100%

100%

100%

Cost
of revenues

18

19

20

Gross
profit

82

81

80

Operating
expenses:

Sales
and marketing

15

17

18

Research,
development and engineering

5

5

5

General
and administrative

18

18

18

Loss
on disposal of long-lived asset

1

—

—

Total
operating expenses

39

40

41

Operating
earnings

43

41

39

Other-than-temporary
impairment losses

4

—

—

Interest
and other income

1

2

4

Interest
and other expense

—

1

—

Earnings
before income taxes

40

42

43

Income
tax expense

13

12

12

Net
earnings

27%

30%

31%

Revenues

Subscriber
Revenues. Subscriber revenues consist of both a fixed monthly
recurring subscription component and a variable component that is driven by the
actual usage of our service offerings. Over the past three years the fixed
portion of our subscriber revenues has contributed an increasing percentage to
our subscriber revenues of 82%, 79% and 76% for 2009, 2008 and 2007,
respectively. Subscriber revenues were $241.9 million, $236.8 million and $212.3
million for the years ended December 31, 2009, 2008 and 2007, respectively. The
increase in subscriber revenues over this three-year period was due primarily to
an increase in the number of our paying subscribers. The increase in our base of
paying subscribers was primarily the result of new sign-ups derived from
subscribers coming directly to our Websites, free-to-paid subscriber upgrades,
small to mid-sized corporate and enterprise sales, direct large enterprise and
government sales, direct marketing spend for acquisition of paying subscribers,
international sales and business acquisitions, in each case net of
cancellations.

Other Revenues. Other
revenues were $3.6 million, $4.7 million and $8.4 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Other revenues consist
primarily of patent licensing revenues, patent sale-related revenues and
advertising revenues generated by delivering email messages to our customers on
behalf of advertisers. The decrease in other revenues from 2008 to 2009 resulted
primarily from lower licensing revenues due to the Company acquiring licensees
and reduced advertising revenues as customers have lowered spending in 2009. The
decrease in other revenues from 2007 to 2008 resulted primarily from a $2.0
million paid up patent license fee relating to past periods, earned during 2007,
as well as lower advertising revenues in 2008.

Cost
of Revenues

Cost of
revenues is primarily comprised of costs associated with data and voice
transmission, telephone numbers, network operations, customer service, online
processing fees and equipment depreciation. Cost of revenues was $44.7 million,
or 18% of revenues, $46.3 million, or 19% of revenues, and $44.0 million, or 20%
of revenues, for the years ended December 31, 2009, 2008 and 2007, respectively.
Cost of revenues as a percentage of revenues decreased from 2007 to 2008 to 2009
primarily due to increased efficiency of network operations and customer
service.

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-

Operating
Expenses

Sales and
Marketing. Our sales and marketing costs consist primarily of
Internet-based advertising, sales and marketing, personnel costs and other
business development-related expenses. Our Internet-based advertising
relationships consist primarily of fixed cost and performance-based
(cost-per-impression, cost-per-click and cost-per-acquisition) advertising
relationships with an array of online service providers. We have a disciplined
return-on-investment approach to our Internet-based advertising and marketing
spend, which causes sales and marketing costs as a percentage of total revenues
to vary from period to period based upon available opportunities. Advertising
cost for the year ended December 31, 2009, 2008 and 2007 was $28.3 million,
$30.3 million and $28.0 million, respectively. Total sales and marketing expense
was $37.0 million, or 15% of revenues, $41.3 million, or 17% of revenues, and
$38.8 million, or 18% of revenues, for the years ended December 31, 2009, 2008,
and 2007, respectively. The decrease in sales and marketing expenses as a
percentage of revenues from 2008 to 2009 was primarily due to more efficient and
cost effective marketing opportunities both in the United States and around the
world. While sales and marketing expense as a percentage of revenues
decreased from 2007 to 2008, the increase in absolute dollars over this period
was due primarily to increased international marketing and additional marketing
in new brands and in our voice services.

Research, Development and
Engineering. Our research, development and engineering costs
consist primarily of personnel-related expense. Research, development and
engineering expense was $11.7 million, or 5% of revenues, $12.0 million, or 5%
of revenues, and $11.8 million, or 5% of revenues, for the years ended December
31, 2009, 2008 and 2007, respectively. The decrease in research,
development and engineering costs from 2008 to 2009 was primarily due to
increased efficiency and synergies from the integration of acquisitions. The
increase in research, development and engineering costs from 2007 to 2008 was
primarily due to an increase in personnel costs associated with new personnel
from businesses acquired in fiscal 2007 and 2008, and increased costs to
maintain our existing services, accommodate our service enhancements, develop
and implement additional service features and functionality and continue to
bolster our infrastructure security.

General and
Administrative. Our general and administrative costs consist
primarily of personnel-related expenses, depreciation and amortization,
share-based compensation expense, bad debt expense and insurance costs. General
and administrative expense was $45.3 million, or 18% of revenues, $44.0 million,
or 18% of revenues, and $39.7 million, or 18% of revenues, for the years ended
December 31, 2009, 2008 and 2007, respectively. The increase in general and
administrative expense from 2008 to 2009 was primarily due to increased
amortization resulting from acquisitions and compensation costs offset by
decreased bad debt and professional fee expenses. The increase in
general and administrative expense from 2007 to 2008 was primarily attributable
to bad debt expense, legal expense, share-based compensation expense and related
payroll tax expense and depreciation and amortization.

Loss on disposal of long-lived
asset. During the fourth quarter of 2009, we determined based
upon our current and future business needs that the rights to certain external
administrative software will not provide any future benefit. Accordingly, we
recorded a disposal in the amount of $2.4 million to the consolidated statement
of operations representing the capitalized cost as of December 31,
2009. Total disposals of long-lived assets for the year ended
December 31, 2009, 2008 and 2007 was approximately $2.5 million, zero
and $0.2 million, respectively.

Share-Based
Compensation

The
following table represents the share-based compensation expense included in cost
of revenues and operating expenses in the accompanying consolidated statements
of operations for the years ended December 31, 2009, 2008 and 2007 (in
thousands):

Year
Ended December 31,

2009

2008

2007

Cost
of revenues

$

1,263

$

901

$

668

Operating
expenses:

Sales
and marketing

1,818

1,268

1,187

Research,
development and engineering

853

803

771

General
and administrative

7,084

5,014

4,788

$

11,018

$

7,986

$

7,414

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-

Non-Operating
Income and Expenses

Interest and Other
Income. Our interest and other income is generated primarily
from interest earned on cash, cash equivalents and short and long-term
investments. Interest and other income amounted to $3.1 million, $4.8 million
and $9.3 million for the years ended December 31, 2009, 2008 and 2007,
respectively. The decrease in interest and other income from 2008 to 2009 was
primarily due to falling interest rates offset by the gain on sale of an auction
rate security in the amount of $1.8 million. The decrease in interest and other
income from 2007 to 2008 was due to falling interest rates and a decrease in
investment balances as a result of repurchases of j2 Global shares and business
acquisitions.

Interest and Other
Expense. Our interest and other expense amounted to $0.4
million, $0.6 million and $0.2 million for the years ended December 31, 2009,
2008 and 2007, respectively. Interest and other expense was primarily related to
realized losses from foreign currency transactions from 2007 through
2009.

Other-than-temporary impairment
losses. An other-than-temporary impairment occurred in
connection with our securities for the year ended December 31, 2009. During
the second quarter of 2009, we recorded an impairment of $9.2 million within the
consolidated statement of operations. During the fourth quarter of 2009, we
determined that one auction rate security was other-than-temporarily impaired
and recorded an impairment loss of $0.2 million to the consolidated statement of
operations.

Income Taxes. Our effective
income tax rate is based on pre-tax income, statutory tax rates, tax regulations
(including those related to transfer pricing) and different tax rates in the
various jurisdictions in which we operate. The tax bases of our assets and
liabilities reflect our best estimate of the tax benefits and costs we expect to
realize. When necessary, we establish valuation allowances to reduce our
deferred tax assets to an amount that will more likely than not be
realized.

As of
December 31, 2009, we had utilizable federal and state (California) net
operating loss carryforwards (“NOLs”) of $5.3 million and $6.7 million,
respectively, after considering substantial restrictions on the utilization of
these NOLs due to “ownership changes”, as defined in the Internal Revenue Code
of 1986, as amended. We currently estimate that all of the above-mentioned
federal and state NOLs will be available for use before their expiration. These
NOLs expire through the year 2021 for the federal and 2014 for the state. In
addition, as of December 31, 2009 and 2008, we had available unrecognized state
research and development tax credits of $0.8 million, which last
indefinitely.

In 2008,
the Governor of California signed into law new tax legislation that suspended
the use of NOLs for tax years beginning on or after January 1, 2008 and 2009.
Despite the Company having taxable income in 2008 and 2009, the Company was not
permitted to utilize its California NOLs generated in prior years to offset this
taxable income for purposes of determining the applicable California income tax
due. Current law reinstates use of NOLs in tax years beginning on or
after January 1, 2010.

Income
tax expense amounted to $31.0 million, $29.6 million and $27.0 million for the
years ended December 31, 2009, 2008 and 2007, respectively. Our effective
tax rates for 2009, 2008 and 2007 were 32%, 29% and 28%, respectively. The
increase in our annual effective income tax rate from 2008 to 2009 was primarily
attributable to the capital loss for book purposes due to the impairment of
certain debt securities and related valuation allowance. The increase
in our annual effective income tax rate from 2007 to 2008 was primarily
attributable to an increase in the proportion of our taxable income being
sourced in the U.S. and subject to higher tax rates than in foreign
jurisdictions, and decreases in tax-exempt interest income.

Significant
judgment is required in determining our provision for income taxes and in
evaluating our tax positions on a worldwide basis. We believe our tax positions,
including intercompany transfer pricing policies, are consistent with the tax
laws in the jurisdictions in which we conduct our business. It is possible that
these positions may be challenged, which may have a significant impact on our
effective tax rate.

The
amount of income taxes we pay is subject to audit by federal, state and foreign
tax authorities. Our estimate of the potential outcome of any uncertain tax
issue is subject to management’s assessment of relevant risks, facts and
circumstances existing at that time. We believe that we have adequately provided
for reasonably foreseeable outcomes related to these matters in accordance with
FASB ASC Topic 740, Income Taxes, (“ASC 740”). We recorded an additional
liability for unrecognized tax benefits of $8.2 million in accordance with ASC
740 for the year ended December 31, 2009. We are currently under audit by the
Internal Revenue Service for tax years 2004 through 2008. In addition, we are
under audit by the California Franchise Tax Board for tax years 2005 through
2007 and by the Illinois Department of Revenue for 2005 and 2006. We are also
under audit by various other states for non-income related taxes. Our
future results may include material favorable or unfavorable adjustments to the
estimated tax liabilities in the period the assessments are made or resolved,
which may impact our effective tax rate.

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-

Liquidity
and Capital Resources

Cash
and Cash Equivalents and Investments

At
December 31, 2009, we had total cash and investments of $243.7 million compared
to total cash and investments of $161.9 million at December 31, 2008. The
increase in cash and investments resulted primarily from cash provided by
operations offset by purchases of available-for-sale investments, certificates
of deposit and cash acquisitions of businesses. Total cash and investments
consists of cash and cash equivalents of $197.4 million, short-term investments
of $31.4 million and long-term investments of $14.9 million. Our investments are
comprised primarily of readily marketable corporate debt securities, auction
rate debt preferred securities and certificates of deposits. For financial
statement presentation, we classify our investments primarily as
held-to-maturity and available-for-sale, thus, they are reported as short-term
and long-term based upon their maturity dates. Short-term investments mature
within one year of the date of the financial statements and long-term
investments mature one year or more from the date of the financial statements.
We retain a substantial portion of our cash in foreign jurisdictions for future
reinvestment. If we were to repatriate funds held overseas, we would incur U.S.
income tax on the repatriated amount at an approximate blended federal and state
rate of 40%.

Our
long-term investments consists of corporate and auction rate debt and preferred
securities. The auction rate debt and preferred securities are
illiquid due to failed auctions or following failed auctions were converted into
other illiquid securities. During the fourth quarter of 2007, as a result of
such failed auctions, we reclassified certain short-term available-for-sale
investments of $11.4 million to long-term held-to-maturity investments and had
an unrealized loss of $0.3 million in accumulated other comprehensive
income/(loss) in our consolidated financial statements. During the second
quarter of 2009, we determined that as a result of continued deterioration of
the creditworthiness of the issuers of these securities that we intended to sell
these securities. Accordingly, we reclassified these securities to
available-for-sale. In addition, we determined that these securities were
other-than-temporarily impaired and recorded an impairment of $9.2 million to
the consolidated statement of operations. During the fourth quarter of 2009, we
determined that one auction rate security was other-than-temporarily impaired
and recorded an impairment loss of $0.2 million to the consolidated statement of
operations. During the fourth quarter of 2009, we sold an auction rate security
which was previously determined to be other than temporarily impaired and
recognized a gain on the sale in the amount of $1.8 million which was recorded
within interest and other income in the consolidated statement of operations.
Based on our ability to access our cash and other short-term investments, our
expected operating cash flows and our other sources of cash, we do not
anticipate the lack of liquidity on these investments to affect our ability to
operate our business as usual. There have been no significant changes in the
maturity dates and average interest rates for our investment portfolio and debt
obligations subsequent to December 31, 2009.

We
currently anticipate that our existing cash and cash equivalents and short-term
investment balances and cash generated from operations will be sufficient to
meet our anticipated needs for working capital and capital expenditures, and
investment requirements for at least the next 12 months.

Cash
Flows

Our
primary sources of liquidity are cash flows generated from operations, together
with cash and cash equivalents and short-term investments. Net cash provided by
operating activities was $101.8 million, $90.7 million and $94.2 million for the
years ended December 31, 2009, 2008 and 2007, respectively. Our operating cash
flows result primarily from cash received from our subscribers, offset by cash
payments we make to third parties for their services, employee compensation and
tax payments. Certain tax payments are prepaid during the year and included
within Prepaid expenses and other current assets on the consolidated balance
sheet. Our prepaid tax payments were $7.2 million and $3.1 million at December
31, 2009 and 2008, respectively. More than two-thirds of our subscribers pay us
via credit cards and therefore our receivables from subscribers generally settle
quickly. Our cash and cash equivalents and short-term investments were $228.8
million, $150.8 million and $208.5 million at December 31, 2009, 2008 and 2007,
respectively.

We
currently anticipate that our existing cash, cash equivalents, short-term
investments and cash generated from operations will be sufficient to meet our
anticipated needs for working capital, capital expenditures, investment
requirements and commitments.

Net cash
(used in) provided by investing activities was $(61.4) million, $14.9 million
and $(7.0) million for the years ended December 31, 2009, 2008 and 2007,
respectively. Net cash used in investing activities in 2009 was primarily
attributable to the purchase of available-for-sale investments, certificates of
deposit and cash acquisitions of businesses. Net cash provided by investing
activities in 2008 was primarily attributable to the proceeds of sales of
available-for-sale and held to maturity investments, offset by cash acquisitions
of businesses. Net cash used in investing activities in 2007 was primarily
attributable to purchases of investments, acquisitions of businesses, purchases
of property and equipment and purchases of intangible assets, offset by proceeds
from sales and maturities of investments.

Net cash
provided by (used in) financing activities was $5.4 million, $(104.9) million
and $(29.9) million for the years ended 2009, 2008 and 2007, respectively. Net
cash provided by financing activities in 2009 was primarily attributable to
proceeds from the exercise of stock options and excess tax benefit from
share-based compensation. Net cash used by financing activities in
2008 was

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-

primarily
attributable to the repurchase of our common stock, partially offset by proceeds
from the exercise of stock options and excess tax benefit from share-based
compensation. For 2007, net cash used by financing activities was primarily
comprised of repurchases of our common stock offset by proceeds from the
exercise of stock options and common shares issued under our employee stock
purchase plan.

Stock
Repurchase Program

In
February 2008, j2 Global’s Board of Directors approved a common stock repurchase
program (the “Repurchase Program”) authorizing the repurchase of up to five
million shares of our common stock through the end of December 2010. On July 9,
2008, the Program was completed; five million shares at an aggregated cost of
$108.0 million (including commission fees of $0.1 million) were
repurchased.

Contractual
Obligations and Commitments

The
following table summarizes our contractual obligations and commitments as of
December 31, 2009:

As of
December 31, 2009, our noncurrent liability for uncertain tax positions was
$46.8 million. The future payments related to uncertain tax positions have not
been presented in the table above due to the uncertainty of the amounts and
timing of cash settlement with the taxing authorities.

Credit
Agreement

On
January 5, 2009, we entered into a Credit Agreement (the “Credit Agreement”)
with Union Bank, N.A. (“Lender”) in order to further enhance our liquidity in
the event of potential acquisitions or other corporate purposes. We have not
drawn down any amounts under the Credit Agreement. See Note 8 -
Commitments and Contingencies for further details regarding the Credit
Agreement.

Average
paying telephone number monthly revenue (total divided by number of
months)

$

18,946

$

18,349

$

16,505

Number
of paying telephone numbers

Beginning
of period

1,236

1,064

907

End
of period

1,275

1,236

1,064

Average
of period

1,256

1,150

985

Average
monthly revenue per paying telephone number (1)

$

15.09

$

15.96

$

16.75

(1) Due
to rounding, individual numbers may not recalculate.

Item
7A. Quantitative and Qualitative Disclosures About Market
Risk

The
following discussion of the market risks we face contains forward-looking
statements. Forward-looking statements are subject to risks and uncertainties.
Actual results could differ materially from those discussed in the
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management’s opinions only as of
the date hereof. j2 Global undertakes no obligation to revise or publicly
release the results of any revision to these forward-looking statements. Readers
should carefully review the risk factors described in this document as well as
in other documents we file from time to time with the SEC, including the
Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K filed or to
be filed by us in 2010.

Interest
Rate Risk

Our
exposure to market risk for changes in interest rates relates primarily to our
investment portfolio. We maintain an investment portfolio typically comprised of
various holdings, types and maturities. The primary objectives of our investment
activities are to preserve our principal while at the same time maximizing
yields without significantly increasing risk. To achieve these objectives, we
maintain our portfolio of cash equivalents and investments in a mix of
instruments that meet high credit quality standards, as specified in our
investment policy. Our cash and cash equivalents are not subject to significant
interest rate risk due to the short maturities of these instruments. As of
December 31, 2009, the carrying value of our cash and cash equivalents
approximated fair value. Our return on these investments is subject to interest
rate fluctuations.

Our short
and long-term investments are typically comprised primarily of readily
marketable corporate debt securities, auction rate debt, preferred securities
and certificates of deposit. Investments in fixed rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates. Our
interest income is sensitive to changes in the general level of U.S. and foreign
countries’ interest rates. Due in part to these factors, our future investment
income may fall short of expectations due to changes in interest
rates.

As of
December 31, 2009 and 2008, we had investments in debt securities with effective
maturities greater than one year of approximately $14.9 million and $11.1
million, respectively. Such investments had a weighted-average yield
of 2.1% and 3.8% as of December 31, 2009 and 2008, respectively.

As of
December 31, 2009 and 2008 we had cash and short term cash equivalent
investments in time deposits and money market funds with maturities of 90 days
or less of $197.4 million and $150.8 million respectively. Based on our cash and
cash equivalents and short-term and long-term investment holdings as of December
31, 2009, an immediate 100 basis point decline in interest rates would decrease
our annual interest income by $2.0 million.

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As of
January 5, 2009, we entered into the Credit Agreement with Lender to be used for
working capital and general corporate purposes (see Note 8 of the Notes to
Consolidated Financial Statements included elsewhere in this Annual Report on
Form 10-K). If we were to borrow from the Credit Agreement we would be subject
to the prevailing interest rates and could be exposed to interest rate
fluctuations.

We cannot
ensure that future interest rate movements will not have a material adverse
effect on our future business, prospects, financial condition, operating results
and cash flows. To date, we have not entered into interest rate hedging
transactions to control or minimize these risks.

Foreign
Currency Risk

We
conduct business in certain foreign markets, primarily in Canada and the
European Union. Our primary exposure to foreign currency risk relates to
investment in foreign subsidiaries that transact business in functional
currencies other than the U.S. Dollar, primarily the Canadian Dollar, Euro and
British Pound Sterling. However, the exposure is mitigated by our practice of
generally reinvesting profits from international operations in order to grow
that business.

As we
increase our operations in international markets we become increasingly exposed
to changes in currency exchange rates. The economic impact of currency exchange
rate movements is often linked to variability in real growth, inflation,
interest rates, governmental actions and other factors. These changes, if
material, could cause us to adjust our financing and operating
strategies.

As
currency exchange rates change, translation of the income statements of the
international businesses into U.S. Dollars affects year-over-year comparability
of operating results. Historically, we have not hedged translation risks because
cash flows from international operations were generally reinvested locally;
however, we may do so in the future. Our objective in managing foreign exchange
risk is to minimize the potential exposure to changes that exchange rates might
have on earnings, cash flows and financial position.

Foreign
exchange gains and losses were not material to our earnings in 2009, 2008 or
2007. For the years ended December 31, 2009, 2008 and 2007, translation
adjustments amounted to $1.7 million, $(6.8) million and $2.1 million,
respectively. As of December 31, 2009, cumulative translation adjustments
included in other comprehensive income amounted to $(1.8) million.

We
currently do not have derivative financial instruments for hedging, speculative
or trading purposes and therefore are not subject to such hedging risk. However,
we may in the future engage in hedging transactions to manage our exposure to
fluctuations in foreign currency exchange rates.

We have
audited the accompanying consolidated balance sheets of j2 Global
Communications, Inc. and subsidiaries (collectively, the “Company”) as of
December 31, 2009 and 2008, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2009. Our audits also included the financial
statement schedule of j2 Global Communications, Inc. listed in Item 15(a). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of j2 Global Communications,
Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

As
discussed in Note 2 to the consolidated financial statements, the Company has
adopted the provisions of Accounting Standards Codification (ASC) Topic No. 805,
“Business
Combinations,” and ASC Topic No.
820, “Fair
Value Measurements and Disclosures,” on January 1,
2009, and ASC Topic No. 320, “Investments – Debt
and Equity Securities,” on June 30,
2009.

We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), j2 Global Communications, Inc. and
subsidiaries’ internal control over financial reporting as of December 31, 2009,
based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated February 23,
2010, expressed an unqualified opinion on the effectiveness of j2 Global
Communications, Inc. and subsidiaries’ internal control over financial
reporting.

/s/
SINGER LEWAK LLP

Los
Angeles, California

February
23, 2010

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j2
GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED
BALANCE SHEETS

December
31, 2009 and 2008

(In
thousands, except share amounts)

2009

2008

ASSETS

Cash
and cash equivalents

$

197,411

$

150,780

Short-term
investments

31,381

14

Accounts
receivable, net of allowances of $3,077 and $2,896,
respectively

Common
stock, $0.01 par value. Authorized 95,000,000 at December 31, 2009 and
2008; total issued 52,907,691 and 52,305,293 shares at December
31, 2009 and 2008, respectively, and total outstanding 44,227,123 and
43,624,725 shares at December 31, 2009 and 2008,
respectively

529

523

Additional
paid-in capital

147,619

131,185

Treasury
stock, at cost (8,680,568 shares at December 31, 2009 and 2008,
respectively)